Monocyte cytokines (ie, monokines) induce natural killer (NK) cells to produce interferon-gamma (IFN-gamma), which is critical for monocyte clearance of infectious pathogens and tumor surveillance. Human CD56bright NK cells produce far more IFN-gamma in response to monokines than do CD56dim NK cells. The kinases and phosphatases involved in regulating IFN-gamma production by monokine-activated NK cells are not clearly identified. SHIP1 is a 5' inositol phosphatase that dephosphorylates the phosphatidylinositol-3 kinase (PI-3K) product PI3,4,5P3. Here, we show that constitutive expression of SHIP1 is distinctly lower in CD56bright NK cells compared with CD56dim NK cells, suggesting it could be an important negative regulator of IFN-gamma production in monokine-activated NK cells. Indeed, overexpression of SHIP1 in CD56bright NK cells followed by monokine activation substantially lowered IFN-gamma production. This effect was not seen when NK cells were infected with a SHIP1 mutant containing an inactive catalytic domain. Finally, NK cells in SHIP1-/- mice produced more IFN-gamma in response to monokines in vivo than did NK cells from wild-type mice. Collectively, these results demonstrate that SHIP1 negatively regulates monokine-induced NK cell IFN-gamma production in vitro and in vivo and provide the first molecular explanation for an important functional distinction observed between CD56bright and CD56dim human NK subsets.