Naturally occuring inactivating mutations of the Src homology 2 (SH2) domain-containing tyrosine phosphatase 1 (SHP-1) in mice give rise to the motheaten (me) phenotype. me/me mice have multiple hematopoietic abnormalities, suggesting that this phosphatase plays an important role in hematopoiesis. SHP-1 binds to and is activated by several hematopoietic surface receptors, including the colony-stimulating factor type 1 receptor. We have examined the role of SHP-1 in osteoclastogenesis and osteoclast function using mice with the viable motheaten (me^v/me^v) mutation, which has markedly decreased SHP-1 activity. Histomorphometric analysis of 6-week-old me^v/me^v mice and control littermates showed a marked osteopenia with an increase in bone resorption indices. The number of formed osteoclast-like cells (OCLs) in cocultures of me^v/me^v hematopoietic cells with normal osteoblasts was significantly increased. In contrast, the number of OCLs formed in the coculture of normal bone marrow cells with the me^v/me^v osteoblasts was not significantly different from controls. The bone-resorbing activity of me^v/me^v OCLs and authentic osteoclasts was also found to be increased. Finally, Western blotting of proteins from me^v/me^v and control OCLs revealed an overall increase in tyrosine phosphorylation in the me^v/me^v lysates. These in vivo and in vitro results suggest that SHP-1 is a negative regulator of bone resorption, affecting both the formation and the function of osteoclasts.