Hematopoietic cell phosphatase (HCP) is a tyrosine phosphatase with two Src homology 2 (SH2) domains that is predominantly expressed in hematopoietic cells, including cells whose growth is regulated by interleukin-3 (IL-3). The potential effects of HCP on IL-3-induced protein tyrosine phosphorylation and growth regulation were examined to assess the role of HCP in hematopoiesis. Our studies demonstrate that, following ligand binding, HCP specifically associates with the β chain of the IL-3 receptor through the amino-terminal SH2 domain of HCP, both in vivo and in vitro, and can dephosphorylate the receptor chain in vitro. The effects of increasing or decreasing HCP levels in IL-3-dependent cells were assessed with dexamethasone-inducible constructs containing an HCP cDNA in sense and antisense orientations. Increased HCP levels were found to reduce the levels of IL-3-induced tyrosine phosphorylation of the receptor and to dramatically suppress cell growth. Conversely, decreasing the levels of HCP increased IL-3-induced tyrosine phosphorylation of the receptor and marginally increased growth rate. These results support a role for HCP in the regulation of hematopoietic cell growth and begin to provide a mechanistic explanation for the dramatic effects that the genetic loss of HCP, which occurs in motheaten (me) and viable motheaten (me^v) mice, has on hematopoiesis.