SHP2 is a protein tyrosine phosphatase with a key role in multiple signaling pathways, including the RAS-MAPK cascade. Germline mutations in PTPN11, the gene encoding SHP2, occur in 50% of individuals affected by Noonan syndrome, whereas somatic mutations in this gene cause more than 30% of cases of juvenile myelomonocytic leukemia (JMML), and are variably found in other pediatric hematologic malignancies and tumors. Inhibition of the wild-type protein has been recently demonstrated as a novel effective therapeutic strategy for many forms of cancer. Under basal conditions, wild-type SHP2 is inactive because its N-terminal Src homology 2 (N-SH2) domain blocks the active site of the protein tyrosine phosphatase (PTP) domain. Previous work established that binding of a phosphopeptide ligand to the N-SH2 domain causes SHP2 activation by favoring dissociation of the N-SH2 and PTP domains, however the conformational transitions of N-SH2 controlling ligand affinity and PTP dissociation are not well understood. Based on molecular simulations and free-energy calculations, we revealed a 20Å-spanning allosteric network restraining the N-SH2 domain to two distinct states, a SHP2-activating and a stabilizing state. We find that ligand binding is necessary but not sufficient for SHP2 activation, as only ligands selecting for the activating conformation of N-SH2, depending on ligand sequence and binding mode, are predicted to be effective activators. The proposed model of SHP2 activation is further validated by rationalizing modified basal activity and responsiveness to ligand stimulation of N-SH2 variations at residue Tyr 42 . This study provides mechanistic and energetic insight into SHP2 activation and may open novel routes for SHP2 regulation.