The transmembrane glycoprotein SHPS‐1 binds the protein tyrosine phosphatase SHP‐2 and serves as its substrate. Although SHPS‐1 has been implicated in growth factor‐and cell adhesion‐induced signaling, its biological role has remained unknown. Fibroblasts homozygous for expression of an SHPS‐1 mutant lacking most of the cytoplasmic region of this protein exhibited increased formation of actin stress fibers and focal adhesions. They spread more quickly on fibronectin than did wild‐type cells, but they were defective in subsequent polarized extension and migration. The extent of adhesion‐induced activation of Rho, but not that of Rac, was also markedly reduced in the mutant cells. Activation of the Ras–extracellular signal‐regulated kinase signaling pathway and of c‐Jun N‐terminal kinases by growth factors was either unaffected or enhanced in the mutant fibroblasts. These results demonstrate that SHPS‐1 plays crucial roles in integrin‐mediated cytoskeletal reorganization, cell motility and the regulation of Rho, and that it also negatively modulates growth factor‐induced activation of mitogen‐activated protein kinases.