Src homology-2-containing protein tyrosine phosphatase 2 (SHP2) is a major phosphatase involved in several cellular processes. In recent years, SHP2 has been the focus of significant attention in human diseases, particular in cancer. Several studies have shown that SHP2 plays an important role in regulating immune cell functions in tumor microenvironment. A few clinical trials conducted using SHP2 allosteric inhibitors have shown remarkable anti-tumor benefits and good safety profiles. This review focuses on the current understanding of the regulation of SHP2 and highlights the vital roles of SHP2 in T lymphocytes, macrophages and cancer cells. It also summarizes the current development of SHP2 inhibitors as a promising strategy for cancer immunotherapy.