Protein tyrosine phosphatase SHP-1 plays a critical role in the regulation of a variety of intracellular signaling pathways. SHP-1 is predominantly expressed in the cells of hematopoietic origin, and is recognized as a negative regulator of lymphocyte development and activation. SHP-1 consists of two Src homology 2 (SH2) domains and one protein tyrosine phosphatase (PTP) domain followed by a highly basic C-terminal tail containing tyrosyl phosphorylation sites. It is unclear how the C-terminal tail regulates SHP-1 function. We report the examination of the subcellular localization of a variety of truncated or mutated SHP-1 proteins fused with enhanced green fluorescent protein (EGFP) protein at either the N-terminal or the C-terminal end in different cell lines. Our data demonstrate that a nuclear localization signal (NLS) is located in the C-terminal tail of SHP-1 and the signal is primarily defined by three amino-acid residues (KRK) at the C-terminus. This signal is generally blocked in the native protein and can be exposed by fusing EGFP at the appropriate position or by domain truncation. We have also revealed that this NLS of SHP-1 is triggered by epidermal growth factor (EGF) stimulation and mediates translocation of SHP-1 from the cytosol to the nucleus in COS7 cell lines. These results not only demonstrate the importance of the C-terminal tail of SHP-1 in the regulation of nuclear localization, but also provide insights into its role in SHP-1-involved signal transduction pathways.