Rationale: Idiopathic pulmonary fibrosis (IPF) is a chronic fatal lung disease with dismal prognosis and no cure. The potential role of the ubiquitously expressed SH2 domain-containing tyrosine phosphatase-2 (SHP2) as a therapeutic target has not been studied in IPF. Objectives: To determine the expression, mechanistic role, and potential therapeutic usefulness of SHP2 in pulmonary fibrosis. Methods: The effects of SHP2 overexpression and inhibition on fibroblast response to profibrotic stimuli were analyzed in vitro in primary human and mouse lung fibroblasts. In vivo therapeutic effects were assessed in the bleomycin model of lung fibrosis by SHP2-lentiviral administration and transgenic mice carrying a constitutively active SHP2 mutation. Measurements and Main Results: SHP2 was down-regulated in lungs and lung fibroblasts obtained from patients with IPF. Immunolocalization studies revealed that SHP2 was absent within fibroblastic foci. Loss of SHP2 expression or activity was sufficient to induce fibroblast-to-myofibroblast differentiation in primary human lung fibroblasts. Overexpression of constitutively active SHP2 reduced the responsiveness offibroblasts to profibrotic stimuli, including significant reductions in cell survival and myofibroblast differentiation. SHP2 effects were mediated through deactivation of fibrosis-relevant tyrosine kinase and serine/threonine kinase signaling pathways. Mice carrying the Noonan syndrome-associated gain-of-function SHP2 mutation (SHP2(D61G/+)) were resistant to bleomycin-induced pulmonary fibrosis. Restoration of SHP2 levels in vivo through lentiviral delivery blunted bleomycin-induced pulmonary fibrosis. Conclusions: Our data suggest that SHP2 is an important regulator of fibroblast differentiation, and its loss as observed in IPF facilitates profibrotic phenotypic changes. Augmentation of SHP2 activity or expression should be investigated as a novel therapeutic strategy for IPF.