Focal adhesion complexes are actin-rich, cytoskeletal structures that mediate cell adhesion to the substratum and also selectively regulate signal transduction pathways required for interleukin (IL)-1beta signaling to the MAP kinase, ERK. IL-1-induced ERK activation is markedly diminished in fibroblasts deprived of focal adhesions whereas activation of p38 and JNK is unaffected. While IL-1 signaling is known to involve the activity of protein and lipid kinases including MAP kinases, FAK, and PI3K, little is known about the role of phosphatases in the regulation of IL-1 signal generation and attenuation. Here we demonstrate that SHP-2, a protein tyrosine phosphatase present in focal adhesions, modulates IL-1-induced ERK activation and the transient actin stress fiber disorganization that occurs following IL-1 treatment in human gingival fibroblasts. Using a combination of immunoblotting, immunoprecipitation, and immunostaining we show that SHP-2 is present in nascent focal adhesions and undergoes phosphorylation on tyrosine 542 in response to IL-1 stimulation. Blocking anti-SHP-2 antibodies, electoporated into the cytosol of fibroblasts, inhibited IL-1-induced ERK activation, actin filament assembly, and cell contraction, indicating a role for SHP-2 in these processes. In summary, our data indicate that SHP-2, a focal adhesion-associated protein, participates in IL-1-induced ERK activation likely via an adaptor function.