Although protein tyrosine phosphatase (PTP) inhibitors used in combination with other stimuli can induce interleukin 2 (IL-2) production in T cells, a direct implication of nuclear factor of activated T cells (NFAT) has not yet been demonstrated. This study reports that exposure of leukemic T cells and human peripheral blood mononuclear cells to bis-peroxovanadium (bpV) PTP inhibitors markedly induce activation and nuclear translocation of NFAT. NFAT activation by bpV was inhibited by the immunosuppressive drugs FK506 and cyclosporin A, as well as by a specific peptide inhibitor of NFAT activation. Mobility shift assays showed specific induction of the NFAT1 member by bpV molecules. The bpV-mediated NFAT activation was observed to be important for the up-regulation of the human immunodeficiency virus 1 (HIV-1) long terminal repeat (LTR) and the IL-2 promoter; NFAT1 was demonstrated to be particularly important in bpV-dependent positive action on HIV-1 LTR transcription. The active participation of p56^lck, ZAP-70, p21^ras, and calcium in the bpV-mediated signaling cascade leading to NFAT activation was confirmed, using deficient cell lines and dominant-negative mutants. Finally, overexpression of wild-type SHP-1 resulted in a greatly diminished activation of NFAT by bpV, suggesting an involvement of SHP-1 in the regulation of NFAT activation. These data were confirmed by constitutive NFAT translocation observed in Jurkat cells stably expressing a dominant-negative version of SHP-1. The study proposes that PTP activity attenuates constitutive kinase activities that otherwise would lead to constant NFAT activation and that this activation is participating in HIV-1 LTR stimulation by PTP inhibition.