Interleukin-1 (IL-1)-induced Ca2+ signaling in fibroblasts is constrained by focal adhesions. This process involves the proteintyrosine phosphatase SHP-2, which is critical for IL-1-induced phosphorylation of phospholipase Cgamma1, thereby enhancing IL-1-induced Ca2+ release and ERK activation. Currently, the mechanisms by which SHP-2 modulates Ca2+ release from the endoplasmic reticulum are not defined. We used immunoprecipitation and fluorescence protein-tagged SHP-2 or endoplasmic reticulum (ER)-protein expression vectors, and an ER-specific calcium indicator, to examine the functional relationships between SHP-2, focal adhesions, and IL-1-induced Ca2+ release from the ER. By total internal reflection fluorescence microscopy to image subplasma membrane compartments, SHP-2 co-localized with the ER-associated proteins calnexin and calreticulin at sites of focal adhesion formation in fibroblasts. IL-1beta promoted time-dependent recruitment of SHP-2 and ER proteins to focal adhesions; this process was blocked in cells treated with small interfering RNA for SHP-2 and in cells expressing a Y542F SHP-2 mutant. IL-1 stimulated inositol 1,4,5-trisphosphate receptor-mediated Ca2+ release from the ER subjacent to the plasma membrane that was tightly localized around fibronectin-coated beads and was reduced 4-fold in cells expressing Tyr-542 SHP-2 mutant. In subcellular fractions enriched for ER proteins, immunoprecipitation demonstrated that IL-1-enhanced association of SHP-2 with the type 1 inositol 1,4,5-trisphosphate receptor was dependent on Tyr-542 of SHP-2. We conclude that Tyr-542 of SHP-2 modulates IL-1-induced Ca2+ signals and association of the ER with focal adhesions.