SHP-1 is an important negative regulator of signaling by several receptors including receptors for interleukin-2 (IL-2R) and other cytokines. SHP-1 acts by dephosphorylating the receptors and receptor-associated kinases such as IL-2R-associated Jak3 kinase. We found that SHP-1 protein was not detectable or greatly diminished in most (six of seven) T cell lines derived from various types of T cell lymphomas and all (eight of eight) cutaneous T-cell lymphoma tissues with a transformed, large-cell morphology. All T-cell lymphoma lines tested (eight of eight) expressed diminished amounts or no detectable SHP-1 mRNA. These T cell lines did not, however, carry any mutations in the SHP-1 gene-coding, splice-junction, and promoter regions. Importantly, SHP-1 DNA promoter region in the T cell lines was resistant to digestion with three different methylation-sensitive restriction enzymes. This resistance was reversed by treatment of the cells with a demethylating agent, 5-deoxyazacytidine. The treatment resulted also in the expression of SHP-1 mRNA and, less frequently, SHP-1 protein. The expression of SHP-1 protein was associated with dephosphorylation of the Jak3 kinase. These results show that lack of SHP-1 expression is frequent in malignant T cells and results from methylation of the SHP-1 gene promoter. Furthermore, they indicate that SHP-1 loss may play a role in the pathogenesis of T cell lymphomas by permitting persistence of signals generated by IL-2R and, possibly, other receptor complexes.