SHIP is a 145-kD SH2-containinginositol-5-phosphatase widely expressed in hemopoietic cells. It was first identified as a tyrosine phosphoprotein associated with Shc in response to numerous cytokines. SHIP has been implicated in FcγRIIB receptor-mediated negative signaling in B cells and mast cells and is postulated to down-regulate cytokine signal transduction in myeloid cells. To define further its role in the proliferation and differentiation of hemopoietic progenitors, as well as its function in mature cells, we have generated embryonic stem cells and mice bearing a targeted disruption of both SHIP alleles. Here we show that although SHIP null mice are viable and fertile, they fail to thrive and survival is only 40% by 14 weeks of age. Mortality is associated with extensive consolidation of the lungs resulting from infiltration by myeloid cells. Increased numbers of granulocyte–macrophage progenitors are observed in both the bone marrow and spleen of SHIP ^−/−mice, perhaps as a consequence of hyper-responsiveness to stimulation by macrophage–colony stimulating factor, granulocyte–macrophage colony stimulating factor, interleukin-3, or Steel factor as observed in vitro. In contrast, numbers of bone marrow lymphoid and late erythroid progenitors (CFU-E) are reduced. Thus, homozygous disruption of SHIP establishes the crucial role of this molecule in modulating cytokine signaling within the hemopoietic system and provides a powerful model for further delineating its function.