Leptin is an adipocyte-derived cytokine that regulates food intake and body weight via interaction with its Ob receptor (ObR). Serum leptin levels are chronically elevated in obese humans, suggesting that obesity may be associated with leptin resistance and the inability to generate an adequate ObR response. Evidence suggests that transcriptional activation of target genes by STAT3 (signal transducer and activator of transcription) in the hypothalamus is a critical pathway that mediates leptin’s action. Herein we report that activation of ObR induces the tyrosine phosphorylation of the tyrosine phosphatase SH2-containing phosphatase 2 (SHP-2) and demonstrate that Tyr⁹⁸⁶ within the ObR cytoplasmic domain is essential to mediate phosphorylation of SHP-2 and binding of SHP-2 to ObR. Surprisingly, mutation of Tyr⁹⁸⁶ to Phe, which abrogates SHP-2 phosphorylation and binding to the receptor, dramatically increases gene induction mediated by STAT3. Our findings indicate that SHP-2 is a negative regulator of STAT3-mediated gene induction after activation of ObR and raise the possibility that blocking the interaction of SHP-2 with ObR could overcome leptin resistance by boosting leptin’s weight-reducing effects in obese individuals.