The SH2-containing tyrosine phosphatase Shp2 (PTPN11) is required for growth factor and cytokine signaling. Germline Shp2 mutations cause Noonan Syndrome (NS), which is associated with increased risk of juvenile myelomonocytic leukemia (JMML). Somatic Shp2 mutations occur in sporadic JMML and other leukemias. We found that Shp2 mutants associated with sporadic leukemias transform murine bone marrow cells, whereas NS mutants are less potent in this assay. Transformation requires multiple domains within Shp2 and the Shp2 binding protein Gab2, and is associated with hyperactivation of the Erk, Akt, and Stat5 pathways. Mutant Shp2-transduced BM causes a fatal JMML-like disorder or, less commonly, lymphoproliferation. Shp2 mutants also cause myeloproliferation in Drosophila. Mek or Tor inhibitors potently inhibit transformation, suggesting new approaches to JMML therapy.