Expression of SH2-Homology-Containing Protein-Tyrosine Phosphatase-1 (SHP-1), a candidate tumor suppressor, is repressed in HTLV-1 transformed lymphocyte cell lines, Adult T-cell Leukemia (ATL) cells and in other hematological malignancies. However, the mechanisms underlying regulation and repression of SHP-1 remain unclear. Herein, we cloned the putative full-length, hematopoietic cell specific SHP-1 P2 promoter and identified the "core" promoter regions. HTLV-1 Tax profoundly represses P2 promoter activity and histone deacetylase-1 (HDAC1) potentiates such inhibition. NF-kappaB was implicated as both a rate-limiting factor for basal P2 promoter activity and important for Tax-induced Promoter Silencing (TIPS). Chromatin Immunoprecipitation studies demonstrated that NF-kappaB dissociates from the SHP-1 P2 promoter following the binding of Tax and HDAC1. This is in agreement with co-immunoprecipitation study where NF-kappaB competed with HDAC1 for association with Tax protein. We propose that in TIPS, Tax recruits HDAC1 to the SHP-1 P2 promoter and forms an inhibitory complex that results in deacetylation and dissociation of NF-kappaB from the promoter and attenuation of SHP-1 expression. TIPS provides a possible first step toward HTLV-1 leukemogenesis through its down modulation of this key immediate early negative regulator of IL-2 signaling.