The regulation of phosphatase activity is fundamental to the control of intracellular signalling and in particular the tyrosine kinase-mediated mitogen-activated protein kinase (MAPK) pathway. Shp2 is a ubiquitously expressed protein tyrosine phosphatase and its kinase-induced hyperactivity is associated with many cancer types. In non-stimulated cells we find that binding of the adaptor protein Grb2, in its monomeric state, initiates Shp2 activity independent of phosphatase phosphorylation. Grb2 forms a bidentate interaction with both the N-terminal SH2 and the catalytic domains of Shp2, releasing the phosphatase from its auto-inhibited conformation. Grb2 typically exists as a dimer in the cytoplasm. However, its monomeric state prevails under basal conditions when it is expressed at low concentration, or when it is constitutively phosphorylated on a specific tyrosine residue (Y160). Thus, Grb2 can activate Shp2 and downstream signal transduction, in the absence of extracellular growth factor stimulation or kinase-activating mutations, in response to defined cellular conditions. Therefore,?direct binding of Grb2 activates Shp2 phosphatase in the absence of receptor tyrosine kinase up-regulation.