Nerve growth factor (NGF) mediates the survival and differentiation of neurons by stimulating the tyrosine kinase activity of the TrkA/NGF receptor. Here, we identify SHP-1 as a phosphotyrosine phosphatase that negatively regulates TrkA. SHP-1 formed complexes with TrkA at Y490, and dephosphorylated it at Y674/675. Expression of SHP-1 in sympathetic neurons induced apoptosis and TrkA dephosphorylation. Conversely, inhibition of endogenous SHP-1 with a dominant-inhibitory mutant stimulated basal tyrosine phosphorylation of TrkA, thereby promoting NGF-independent survival and causing sustained and elevated TrkA activation in the presence of NGF. Mice lacking SHP-1 had increased numbers of sympathetic neurons during the period of naturally occurring neuronal cell death, and when cultured, these neurons survived better than wild-type neurons in the absence of NGF. These data indicate that SHP-1 can function as a TrkA phosphatase, controlling both the basal and NGF-regulated level of TrkA activity in neurons, and suggest that SHP-1 regulates neuron number during the developmental cell death period by directly regulating TrkA activity.