FcgammaR-mediated phagocytosis is accompanied by the generation of tissue-damaging products such as inflammatory cytokines and reactive oxygen species. Hence, the phagocytic response must be a tightly regulated process. Recent studies have established that clustering FcgammaR on human myeloid cells causes tyrosine phosphorylation of Src homology 2 domain-containing inositol polyphosphate phosphatase (SHIP). However, it is not known how these immunoreceptor tyrosine-based activation motif (ITAM)-bearing phagocytic FcgammaR activate SHIP, or whether the activation of SHIP by ITAMs has any functional relevance. Experiments addressing the mechanism of SHIP association with ITAMs have been done in in vitro systems using phosphopeptides. In this study we undertook to dissect the molecular mechanism by which SHIP associates with the native ITAM-FcgammaR and becomes phosphorylated. In this report we provide evidence that first, SHIP is indeed phosphorylated by ITAM-FcgammaR, using cell systems that lack FcgammaRIIb expression; second, coimmunoprecipitation experiments demonstrate that SHIP associates with native ITAM-bearing FcgammaRIIa in vivo; and third, phosphorylation of SHIP by FcgammaRIIa is inhibited by overexpressing either the SHIP Src homology 2 domain or a dominant negative mutant of Shc. In contrast, SHIP phosphorylation was not inhibited by a dominant negative mutant of Grb2. We extend these observations to show that SHIP activation by ITAM-FcgammaR down-regulates NF-kappaB-induced gene transcription. These findings both provide a molecular mechanism for SHIP association with native ITAM-bearing receptors and demonstrate that SHIP association with ITAM-FcgammaR serves to regulate gene expression during the phagocytic process.