SHP‐2 is a cytoplasmic protein tyrosine phosphatase (PTP) that contains two Src homology 2 (SH2) domains. Although PTPs are generally considered to be negative regulators on the basis of their ability to oppose the effects of protein tyrosine kinases, SHP‐2 is unusual in that it promotes the activation of the Ras‐MAPK signaling pathway by receptors for various growth factors and cytokines. The molecular basis for the activation of SHP‐2 is also unique: In the basal state, the NH₂‐terminal SH2 domain of SHP‐2 interacts with the PTP domain, resulting in autoinhibition of PTP activity; the binding of SHP‐2 via its SH2 domains to tyrosine‐phosphorylated growth factor receptors or docking proteins, however, results in disruption of this intramolecular interaction, leading to exposure of the PTP domain and catalytic activation. Indeed, SHP‐2 proteins with artificial mutations in the NH₂‐terminal SH2 domain have been shown to act as dominant active mutants in vitro. Such activating mutations of PTPN11 (human SHP‐2 gene) were subsequently identified in individuals with Noonan syndrome, a human developmental disorder that is sometimes associated with juvenile myelomonocytic leukemia. Furthermore, somatic mutations of PTPN11 were found to be associated with pediatric leukemia. SHP‐2 is also thought to participate in the development of other malignant disorders, but in a manner independent of such activating mutations. Biochemical and functional studies of SHP‐2 and genetic analysis of PTPN11 in human disorders have thus converged to provide new insight into the pathogenesis of cancer as well as potential new targets for cancer treatment. (Cancer Sci 2009; 100: 1786–1793)