The tissue inhibitors of metalloproteinases (TIMPs) block matrix metalloproteinase (MMP)-mediated increases in cell proliferation, migration, and invasion that are associated with extracellular matrix (ECM) turnover. Here we demonstrate a direct role for TIMP-2 in regulating tyrosine kinase-type growth factor receptor activation. We show that TIMP-2 suppresses the mitogenic response to tyrosine kinase-type receptor growth factors in a fashion that is independent of MMP inhibition. The TIMP-2 suppression of mitogenesis is reversed by the adenylate cyclase inhibitor SQ22536, and implicates cAMP as the second messenger in these effects. TIMP-2 neither altered the release of transforming growth factor alpha from the cell surface, nor epidermal growth factor (EGF) binding to the cognate receptor, EGFR. TIMP-2 binds to the surface of A549 cells in a specific and saturable fashion (K(d) = 147 pm), that is not competed by the synthetic MMP inhibitor BB-94 and is independent of MT-1-MMP. TIMP-2 induces a decrease in phosphorylation of EGFR and a concomitant reduction in Grb-2 association. TIMP-2 prevents SH2-protein-tyrosine phosphatase-1 (SHP-1) dissociation from immunoprecipitable EGFR complex and a selective increase in total SHP-1 activity. These studies represent a new functional paradigm for TIMP-2 in which TIMP suppresses EGF-mediated mitogenic signaling by short-circuiting EGFR activation.