This study provides biochemical and functional evidence pertaining to the role of the intracellular protein tyrosine phosphatase, SHP‐1, in influencing thresholds for TCR activation. Although the loss of SHP‐1 in thymocytes from motheaten mice had minimal effects on the initial rise of cytosolic Ca²⁺ concentration following TCR triggering, the post‐stimulation equilibrium levelsof Ca²⁺ were consistently elevated. In keeping with a SHP‐1 effect on PLCγ function, IP₃ generation was increased in SHP‐1 deficient thymocytes. Importantly, we demonstrate that loss of SHP‐1 results in a relaxation of the normally stringent co‐stimulatory requirements for IL‐2 production. SHP‐1 deficient single‐positive CD4⁺ thymocytes revealed a significantly enhanced capacity to produce IL‐2 in response to anti‐CD3 stimulation alone. In contrast, the simultaneous triggering of CD3 and CD28 was required for equivalent IL‐2 production in control single‐positive CD4⁺ thymocytes. Furthermore, SHP‐1 deficient thymocytes generated an increased and prolonged proliferative response to anti‐CD3 stimulation alone. In addition, the simultaneous triggering of CD28 and CD3 resulted in equivalent proliferative responses in SHP‐1‐deficient and control thymocytes, suggesting that a strong co‐stimulatory signal is able to override the effect of SHP‐1 loss on TCR hyperresponsiveness. Collectively, these results suggest that SHP‐1, rather than acting directly on TCR signaling, may indirectly raise thresholds for TCR triggering by modulating co‐stimulatory signals.