Activating and inhibitory receptors act in concert to regulate cellular activation. Inhibitory receptors are characterized by the presence of a characteristic sequence known as an immunoreceptor tyrosine‐based inhibitory motif (ITIM) in their cytoplasmic tail. Phosphorylated ITIM serve as docking sites for the SH2‐containing phosphatases which then inhibit signal transduction. CD33 is a member of the immunoglobulin superfamily and contains two immunoglobulin‐like domains, a transmembrane region and a cytoplasmic tail that has two potential ITIM sequences. CD33 expression is restricted to cells of myelomonocytic lineage. The precise function of CD33 is unknown although it is a lectin that binds sialic acid residues in N‐ and O‐glycans on cell surfaces. Co‐immunoprecipitation studies demonstrate that CD33 associates with the SH2‐containing tyrosine phosphatase SHP‐1 in monocytes. The proximal ITIM is necessary and sufficient for SHP‐1 binding which is mediated by the aminoterminal SH2 domain. Treatment of SHP‐1 with a phosphopeptide representing the proximal CD33 ITIM results in increased SHP‐1 enzymatic activity. CD33 exerts an inhibitory effect on tyrosine phosphorylation and Ca²⁺ mobilization when co‐engaged with the activating FcγRI receptor. This data indicates that CD33 is an inhibitory receptor that may regulate FcγRI signal transduction.