CEACAM1, a tumor suppressor (previously known as pp120), is a plasma membrane protein that undergoes phosphorylation on Tyr(488) in its cytoplasmic tail by the insulin receptor tyrosine kinase. Co-expression of CEACAM1 with insulin receptors decreased cell growth in response to insulin. Co-immunoprecipitation experiments in intact NIH 3T3 cells and glutathione S-transferase pull-down assays revealed that phosphorylated Tyr(488) in CEACAM1 binds to the SH2 domain of Shc, another substrate of the insulin receptor. Overexpressing Shc SH2 domain relieved endogenous Shc from binding to CEACAM1 and restored MAP kinase activity, growth of cells in response to insulin, and their colonization in soft agar. Thus, by binding to Shc, CEACAM1 sequesters this major coupler of Grb2 to the insulin receptor and down-regulates the Ras/MAP kinase mitogenesis pathway. Additionally, CEACAM1 binding to Shc enhances its ability to compete with IRS-1 for phosphorylation by the insulin receptor. This leads to a decrease in IRS-1 binding to phosphoinositide 3'-kinase and to the down-regulation of the phosphoinositide 3'-kinase/Akt pathway that mediates cell proliferation and survival. Thus, binding to Shc appears to constitute a major mechanism for the down-regulatory effect of CEACAM1 on cell proliferation.