NKB1 is one member of a growing family of killer cell inhibitory receptors (KIR). It is expressed on natural killer (NK) cells and T cells, and has been shown to inhibit cytolytic functions of these cells upon interacting with its ligand, HLA-B (Bw4). We demonstrate here that the cytoplasmic region of NKB1 is capable of inhibiting T cell activation in Jurkat cells. The tyrosine phosphorylation of the NKB1 KIR consensus motif, YxxL(x)26 YxxL, induces an association with the protein tyrosine phosphatase 1C (PTP1C). Importantly, mutation of both tyrosines in the motif abolished the inhibitory functions of NKB1 and abrogated PTP1C association. Mutational analysis of the individual tyrosines suggest that the membrane proximal tyrosine may play a crucial role in mediating the inhibitory signal. These results demonstrate that KIR can not only inhibit cytolytic activity, but can also negatively regulate T cell receptor activation events that lead to downstream gene activation, and further supports a model that implicates PTP1C as a mediator in the KIR inhibitory signal.