Previous studies showed that most cases of ALK(+) anaplastic large-cell lymphoma (ALK(+)ALCL) do not express SHP1, a tyrosine phosphatase and an important negative regulator for cellular signaling pathways such as that of JAK/STAT. To fully assess the biologic significance of loss of SHP1 in ALK(+)ALCL, we transfected SHP1 plasmids into 2 SHP1(-), ALK(+)ALCL cell lines, Karpas 299 and SU-DHL-1. After 24 hours of transfection, pJAK3 and pSTAT3 were decreased, and these changes correlated with down-regulation of STAT3 downstream targets including cyclin D3, mcl-1, and bcl-2. Expression of SHP1 in these 2 cell lines also resulted in marked decreases in the protein levels of JAK3 and NPM-ALK, and these effects were reversible by proteosome inhibitor MG132. Conversely, when SHP1 expression in SUP-M2 (a SHP1(+) ALK(+)ALCL cell line) was inhibited using siRNA, pSTAT3, pJAK3, JAK3, and NPM-ALK were all up-regulated. Coimmunoprecipitation studies showed that SHP1 was physically associated with JAK3 and NPM-ALK. SHP1 expression in Karpas 299 and SU-DHL-1 led to significant G(1) cell cycle arrest but not apoptosis. To conclude, loss of SHP1 contributes to the pathogenesis of ALK(+)ALCL by 2 mechanisms: (1) it leaves the tyrosine phosphorylation and activation of JAK3/STAT3 unchecked and (2) it decreases proteosome degradation of JAK3 and NPM-ALK.