v-Abl protein tyrosine kinase encoded by Abelson murine leukemia virus (Ab-MLV) transforms pre-B cells. Transformation requires the phosphatidylinositol 3-kinase (PI3K) pathway. This pathway is antagonized by SH2-containing inositol 5'-phosphatase (SHIP), raising the possibility that v-Abl modulates PI3K signaling through SHIP. Consistent with this, we show that v-Abl expression reduces levels of full-length p145 SHIP in a v-Abl kinase activity-dependent fashion. This event requires signals from the Abl SH2 domain but not the carboxyl terminus. Forced expression of full-length SHIP significantly reduces Ab-MLV pre-B-cell transformation. Therefore, reduction of SHIP protein by v-Abl is a critical component in Ab-MLV transformation.