Activating and inhibitory receptors act in concert to regulate cellular activation. Inhibitory receptors are characterized by the presence of a characteristic sequence known as an immunoreceptor tyrosine-based inhibitory motif (ITIM) in their cytoplasmic tail. Phosphorylated ITIM serve as docking sites for the SH2-containing phosphatases which then inhibit signal transduction. CD33 is a member of the immunoglobulin superfamily and contains two immunoglobulin-like domains, a transmembrane region and a cytoplasmic tail that has two potential ITIM sequences. CD33 expression is restricted to cells of myelomonocytic lineage. The precise function of CD33 is unknown although it is a lectin that binds sialic acid residues in N- and O-glycans on cell surfaces. Co-immunoprecipitation studies demonstrate that CD33 associates with the SH2-containing tyrosine phosphatase SHP-1 in monocytes. The proximal ITIM is necessary and sufficient for SHP-1 binding which is mediated by the aminoterminal SH2 domain. Treatment of SHP-1 with a phosphopeptide representing the proximal CD33 ITIM results in increased SHP-1 enzymatic activity. CD33 exerts an inhibitory effect on tyrosine phosphorylation and Ca(2+) mobilization when co-engaged with the activating FcgammaRI receptor. This data indicates that CD33 is an inhibitory receptor that may regulate FcgammaRI signal transduction.