CD22 is an inhibitory B cell coreceptor that regulates B cell development and activation by downregulating BCR signaling through activation of SH2-containing protein tyrosine phosphatase-1 (SHP-1). CD22 recognizes α2,6 sialic acid as a specific ligand and interacts with α2,6 sialic acid-containing membrane molecules, such as CD45, IgM, and CD22, expressed on the same cell. Functional regulation of CD22 by these endogenous ligands enhances BCR ligation-induced signaling and is essential for normal B cell responses to Ags. In this study, we demonstrate that CD45 plays a crucial role in CD22-mediated inhibition of BCR ligation-induced signaling. However, disruption of ligand binding of CD22 enhances CD22 phosphorylation, a process required for CD22-mediated signal inhibition, upon BCR ligation in CD45^-/- as well as wild-type mouse B cells but not in mouse B cells expressing a loss-of-function mutant of SHP-1. This result indicates that SHP-1 but not CD45 is required for ligand-mediated regulation of CD22. We further demonstrate that CD22 is a substrate of SHP-1, suggesting that SHP-1 recruited to CD22 dephosphorylates nearby CD22 as well as other substrates. CD22 dephosphorylation by SHP-1 appears to be augmented by homotypic CD22 clustering mediated by recognition of CD22 as a ligand of CD22 because CD22 clustering increases the number of nearby CD22. Our results suggest that CD22 but not CD45 is an endogenous ligand of CD22 that enhances BCR ligation-induced signaling through SHP-1-mediated dephosphorylation of CD22 in CD22 clusters.