Recognition of major histocompatibility (MHC) class I complexes on target cells by killer cell inhibitory receptors (KIR) blocks natural killer (NK) and T cell cytotoxic function. The inhibitory effect of KIR ligation requires the phosphotyrosine-dependent association of KIR with the cytoplasmic SH2-containing protein tyrosine phosphatase SHP-1. Using a somatic genetic model, we first define a requirement for the Src family protein tyrosine kinase (PTK) Lck in mediating KIR tyrosine phosphorylation. We then investigate how KIR ligation interrupts PTK-dependent NK cell activation signals. Specifically, we show that KIR ligation inhibits the Fc receptor (FcR)-induced tyrosine phosphorylation of the FcR-associated signaling chain, the PTK ZAP-70, and phospholipase Cγ. Overexpression of catalytically inactive SHP-1 (acting as a dominant negative) restores the tyrosine phosphorylation of these signaling events and reverses KIR-mediated inhibition of NK cell cytotoxic function. These results suggest sequential roles for Lck and SHP-1 in the inhibition of PTK following MHC recognition by NK cells.