Internal tandem duplications (ITDs) in the fms-like tyrosine kinase receptor (FLT3-ITDs) confer a poor prognosis in acute myeloid leukemia (AML). We hypothesized that increased recruitment of the protein tyrosine phosphatase, Shp2, to FLT3-ITDs contributes to FLT3 ligand (FL)-independent hyperproliferation and STAT5 activation. Co-immunoprecipitation demonstrated constitutive association of Shp2 with the FLT3-ITD, N51-FLT3, as well as with STAT5. Knockdown of Shp2 in Baf3/N51-FLT3 cells significantly reduced proliferation while having little effect on WT-FLT3-expressing cells. Consistently, mutation of N51-FLT3 tyrosine 599 to phenylalanine or genetic disruption of Shp2 in N51-FLT3-expressing bone marrow low-density mononuclear cells reduced proliferation and STAT5 activation. In transplants, genetic disruption of Shp2 in vivo yielded increased latency to and reduced severity of FLT3-ITD-induced malignancy. Mechanistically, Shp2 co-localizes with nuclear phospho-STAT5, is present at functional interferon-γ activation sites (GAS) within the BCL2L1 promoter, and positively activates the human BCL2L1 promoter, suggesting that Shp2 works with STAT5 to promote pro-leukemogenic gene expression. Further, using a small molecule Shp2 inhibitor, the proliferation of N51-FLT3-expressing bone marrow progenitors and primary AML samples was reduced in a dose-dependent manner. These findings demonstrate that Shp2 positively contributes to FLT3-ITD-induced leukemia and suggest that Shp2 inhibition may provide a novel therapeutic approach to AML.