The SH2 domain PTP SHP‐1 was recently identified as a potent negative regulator of the orphan receptor tyrosine kinase Ros, an important regulator of epidimys differentiation (Keilhack et al. J Cell Biol 2001; 152:325–334). Phosphorylated Ros strongly and directly associates with SHP‐1 in yeast‐two‐hybrid, GST pull‐down, and coimmunoprecipitation experiments. Catalytically inactive SHP‐1C455S exhibits greatly elevated binding to phosphorylated Ros. Direct Ros–SHP‐1 interaction is mediated by the SHP‐1 N‐terminal SH2 domain and Ros phosphotyrosine 2267. Overexpression of SHP‐1 results in Ros dephosphorylation and effectively down‐regulates Ros‐dependent proliferation and transformation. Elevated phosphorylation of Ros in ‘viable motheaten (me‐v)’ mice which, have strongly reduced SHP‐1 activity, suggests that Ros signaling is under control of SHP‐1 in vivo. Thus sterility of male me‐v mice seems to be related to dysregulation of Ros. A synthetic phosphopeptide derived from the Ros sequence around Y2267 potently activates recombinant SHP‐1 in vitro but is not a good substrate for SHP‐1. In contrast, phosphorylation sites in the activation loop of Ros are effectively dephosphorylated. Based on these observations we propose a mechanistic model of Ros–SHP‐1 interaction. Using fusion proteins of SHP‐1 variants and of Ros with GFP‐proteins of different spectral characteristics the interaction of Ros and SHP‐1 can be visualized in intact cells by different microscopic techniques.