Expression of SH(2)-homology-containing protein-tyrosine phosphatase-1 (SHP-1), a candidate tumor suppressor, is repressed in human T-cell leukemia virus type-1 (HTLV-1)-transformed lymphocyte cell lines, adult T-cell leukemia (ATL) cells, and in other hematologic malignancies. However, the mechanisms underlying regulation and repression of SHP-1 remain unclear. Herein, we cloned the putative full-length, hematopoietic cell-specific SHP-1 P2 promoter and identified the "core" promoter regions. HTLV-1 Tax profoundly represses P2 promoter activity and histone deacetylase-1 (HDAC1) potentiates such inhibition. NF-kappaB was implicated as both a rate-limiting factor for basal P2 promoter activity and important for Tax-induced promoter silencing (TIPS). Chromatin immunoprecipitation studies demonstrated that NF-kappaB dissociates from the SHP-1 P2 promoter following the binding of Tax and HDAC1. This is in agreement with coimmunoprecipitation studies where NF-kappaB competed with HDAC1 for association with Tax protein. We propose that in TIPS, Tax recruits HDAC1 to the SHP-1 P2 promoter and forms an inhibitory complex that results in deacetylation and dissociation of NF-kappaB from the promoter and attenuation of SHP-1 expression. TIPS provides a possible first step toward HTLV-1 leukemogenesis through its down-modulation of this key immediate early negative regulator of IL-2 signaling.