Src-homology protein tyrosine phosphatase-1 (SHP-1) is a protein tyrosine phosphatase that is implicated in the regulation of growth, differentiation, survival, apoptosis and proliferation of hematopoietic cells and other cell types. Here, we found that SHP-1 is involved in regulation of early embryonic development. Embryos overexpressing SHP-1 were mainly arrested at the 8-cell stage, and Nanog mRNA expression was first observed in the morulae that showed down-regulation of SHP-1. These results suggested an antagonistic relationship between SHP-1 and Nanog during early embryonic development. Next, the specific mechanism was examined in mouse F9 embryonal carcinoma cells. We confirmed that signal transducer and activator of transcription 3 (STAT3) was a substrate for SHP-1 by co-immunoprecipitation. Using overexpression and knockdown strategies, we found that SHP-1 participated in regulation of Nanog expression. Furthermore, site mutation of STAT3 was performed to confirm that SHP-1 was responsible for rapid STAT3 dephosphorylation and a decrease of Nanog expression in F9 cells. These findings suggest that SHP-1 plays a crucial role during early embryonic development. Thus, SHP-1 may function as a key regulator for Nanog that specifically demarcates the nascent epiblast, coincident with the domain of X chromosome reprogramming.