Modulation of the strength of signals from the TCR determines the outcome of positive and negative selection in thymocyte development. Previous studies have demonstrated that SHP-1 plays a role in determining signal strength from the TCR. Here, we have taken a genetic approach to test whether SHP-1 plays a role in T cell selection in the thymus. Experiments in which a dominant negative mutant of SHP-1 was expressed in the BYDP hybridoma cell line confirmed that SHP-1 regulated TCR signaling in a cell-autonomous manner and suggested that Lck is one of its targets. To examine the role of SHP-1 in T cell development, we crossed the ovalbumin-specific DO11.10 TCR transgene onto the motheaten background, which lacks SHP-1 expression. Analysis of the progeny of these crosses provided evidence that SHP-1 regulates thymocyte selection: (i) flow cytometric analyses revealed alterations in the percentages of thymocyte subpopulations in the me/me background; (ii) ex vivo deletion experiments demonstrated that me/me:Tg thymocytes undergo negative selection at lower concentrations of OVA peptide compared to +/+:Tg thymocytes; and (iii) ex vivo proliferation analyses indicated that me/me:Tg thymocytes were hyper-sensitive to stimulation by the specific OVA peptide. Our observation that the absence of SHP-1 leads to altered selection of TCR transgenic thymocytes demonstrates that SHP-1 regulates the strength of TCR-mediated signals in vivo and, in turn, helps to set the threshold for thymocyte selection.