Angiotensin II is an octapeptide that regulates diverse cellular responses including the actin cytoskeletal organization. In this study, stable cell lines overexpressing wild-type or catalytically inactive SHP-2 were employed to elucidate the signaling pathway utilized by the SHP-2 tyrosine phosphatase that mediates an angiotensin II-induced reorganization of the actin cytoskeleton in vascular smooth muscle cells (VSMC). The expression of wild-type SHP-2 prevented an angiotensin II dependent increase in stress fiber formation. In contrast, the catalytically inactive mutant SHP-2 increased stress fiber formation. Additional observations further established that SHP-2 regulates the reorganization of the actin cytoskeleton through RhoA- and Vav2-dependent signaling pathways. The expression of wild-type SHP-2 caused a dephosphorylation of several focal adhesion associated proteins including paxillin, p130Cas, and tensin in VSMC. This dephosphorylation of focal adhesion associated proteins was accompanied by significantly decreased numbers of focal adhesions within cells. These results demonstrate a unique role for SHP-2 in the regulation of the cellular architecture of VSMC, suggesting the possibility that this phosphatase might be instrumental in vascular remodeling.