NKG2 is a small family of type II transmembrane proteins possessing extracellular C-type lectin domains expressed primarily on NK cells. The function of these proteins is unknown. We have developed mAbs that recognize NKG2 family members on Western blots. Examination of cell extracts from NK cell clones demonstrates that individual NKG2 family members are expressed on subsets of NK cells. Because the anti-NKG2 mAb do not react with the cell surface Ag, signaling function was studied by generating cell lines that express a chimeric receptor consisting of a cytoplasmic and transmembrane domain from NKG2-A or NKG2-C fused to the extracellular segment of mouse NKR-P1C (NK1.1 Ag). Transfectants of the rat NK cell line, RNK-16, were tested for the effect of anti-NK1.1 mAb on cytolytic activity against the FcR+ target cell lines, P388D1 and P815. The anti-NK1.1 mAb stimulated lytic activity and calcium mobilization in the NK cell line expressing the NKG2-C/NKR-P1C chimeric receptor. By contrast, anti-NK1.1 inhibited the lytic activity and failed to stimulate a calcium response in cells expressing the NKG2-A/NKR-P1C chimeric receptor. Immunoprecipitation experiments demonstrated that the inhibitory cytoplasmic tyrosine phosphatase SHP-1 selectively associates with the NKG2-A/NKR-P1C chimeric receptor, but not with the stimulatory NKG2-C/NKR-P1C receptor. These data indicate that NKG2-A and NKG2-C deliver, respectively, inhibitory and activating transmembrane signals in NK cells.