Receptor activator of NF-kappaB ligand (RANKL) is essential for differentiation and function of osteoclasts. The negative signaling pathways downstream of RANKL are not well characterized. By retroviral transduction of RAW264.7 cells with a dominant negative Src homology 2 domain-containing phosphatase-1 (SHP-1)(C453S), we studied the role of tyrosine phosphatase SHP-1 in RANKL-induced osteoclastogenesis. Over-expression of SHP-1(C453S) significantly enhanced the number of tartrate-resistant acid phosphatase-positive multinuclear osteoclast-like cells in response to RANKL in a dose-dependent manner. RANKL induced the recruitment of SHP-1 to a complex containing TNFR-associated factor (TRAF)6. GST pull down experiments indicated that the association of SHP-1 with TRAF6 is mediated by SHP-1 lacking the two Src homology 2 domains. RANKL-stimulated IkappaB-alpha phosphorylation, IkappaB-alpha degradation and DNA binding ability of NF-kappaB were increased after over-expression of SHP-1(C453S). However, RANKL-induced phosphorylation of mitogen-activated protein kinases, extracellular signal-regulated kinase, c-Jun N-terminal kinase, and p38 mitogen-activated protein kinase, was unchanged. In addition, SHP-1 regulated RANKL-stimulated tyrosine phosphorylation of p85 subunit of phosphatidylinositol 3 kinase and the phosphorylation of Akt. Increased numbers of osteoclasts contribute to severe osteopenia in Me(v)/Me(v) mice due to mutation of SHP-1. Like RAW264.7 cells expressing SHP-1(C453S), the bone marrow macrophages of Me(v)/Me(v) mice generated much more osteoclast-like cells than that of littermate controls in response to RANKL. Furthermore compared with controls, RANKL induces enhanced association of TRAF6 and RANK in both RAW264.7 cells expressing SHP-1(C453S) and bone marrow macrophages from Me(v)/Me(v) mice. Therefore, SHP-1 plays a role in signals downstream of RANKL by recruitment to the complex containing TRAF6 and these observations may help to understand the mechanism of osteoporosis in Me(v)/Me(v) mice.