Shp2/Ptpn11 tyrosine phosphatase is a general regulator of the RTK pathways. By genetic ablation, we demonstrate that Shp2 is required for lacrimal gland budding, lens cell proliferation, survival and differentiation. Shp2 deletion disrupted ERK signaling and cell cycle regulation, which could be partially compensated by activated Kras signaling, confirming that Ras signaling was the main downstream target of Shp2 in lens and lacrimal gland development. We also showed that Sprouty2, a general suppressor of Ras signaling, was regulated by Shp2 positively at the transcriptional level and negatively at the post-translational level. Only in the absence of Sprouty2 could activated Kras signaling robustly rescue the lens proliferation and lacrimal-gland-budding defects in the Shp2 mutants. We propose that the dynamic regulation of Sprouty by Shp2 might be important not only for modulating Ras signaling in lens and lacrimal gland development, but also for RTK signaling in general.