CTLA-4, a negative regulator of T cell function, was found to associate with the T cell receptor (TCR) complex ζ chain in primary T cells. The association of TCRζ with CTLA-4, reconstituted in 293 transfectants, was enhanced by p56^lck-induced tyrosine phosphorylation. Coexpression of the CTLA-4–associated tyrosine phosphatase, SHP-2, resulted in dephosphorylation of TCRζ bound to CTLA-4 and abolished the p56^lck-inducible TCRζ–CTLA-4 interaction. Thus, CTLA-4 inhibits TCR signal transduction by binding to TCRζ and inhibiting tyrosine phosphorylation after T cell activation. These findings have broad implications for the negative regulation of T cell function and T cell tolerance.