Reactive oxygen species (ROS) have recently drawn significant attention as putative mitogenic mediators downstream of activated growth factor receptors and oncogenic Ras; however, the possibility that a redox-related mechanism also operates in the negative control of cell proliferation by inhibitory signals has not been investigated thus far. Here we show that the arrest of growth induced by cell confluence ("contact inhibition") is due, at least in part, to a decrease in the steady-state levels of intracellular ROS and the consequent impairment of mitogenic redox signaling. In confluent fibroblast cultures, the decrease in the concentration of oxygen species was associated with diminished activity of the small GTPase Rac-1, a signal transducer directly involved in the ligand-dependent generation of oxygen-derived molecules, and was effectively mimicked by exposure of sparse cultures to dithiothreitol (DTT) and inhibitors of enzymes (phospholipase A2 and lipoxygenase) acting in the arachidonic acid cascade downstream of growth factor receptors and Rac-1. Sparse fibroblasts treated with nontoxic amounts of DTT underwent growth arrest, whereas a low concentration of hydrogen peroxide significantly increased thymidine incorporation in confluent cultures, demonstrating a causal link between redox changes and growth control by cell density. Removal of oxygen species from sparse cultures was accompanied by a drastic decrease of protein tyrosine phosphorylation after epidermal growth factor stimulation, which, at a biochemical level, reproduced the signaling hallmarks of contact inhibition. Moreover, the cytosolic tyrosine phosphatase SHP-2 was identified as a putative target for redox signaling by cell density because the enzyme itself and the associated substrates appear markedly dephosphorylated in both confluent and reductant-treated cells after exposure to epidermal growth factor, and SHP-2 enzymatic activity is strongly activated by DTT in vitro. Taken together, these data support a model in which impaired generation of ROS and increased protein tyrosine phosphatase activity impede mitogenic signaling in contact-inhibited cells.