Gene amplification or HER-2/neu protein overexpression signals a poor outcome for bladder cancer patients. We investigated the anti-proliferative effect of IFN-γ in HER-2/neu-transfected human bladder cancer cells (TCC-N5 and TCC-N10). The cells continued growing after IFN-γ stimulation but did not activate the Janus kinase (Jak)/Stat pathway. We found Jak/Stat protein phosphatase in TCC-N5 and TCC-N10 cells with upregulated Src homology 2-containing protein tyrosine phosphatase-2 (SHP-2). After the cells had been treated with AG825, a HER-2/neu-specific inhibitor, SHP-2 expression declined, and Jak2/Stat1 reactivated. Similar results were reported in a mouse bladder cancer cell line, MBT2, with constitutive HER-2/neu overexpression. Further, AG825 pretreatment restored the anti-proliferation activity of IFN-γ in TCC-N5 and TCC-N10 cells. Therefore, the suppression of IFN-γ signaling in HER-2/neu-overexpressing bladder cancer cells might be due to SHP-2 upregulation. The regulation of SHP-2 by HER-2/neu provides a new target for blocking the HER-2/neu oncogenic pathway.