There is a great deal of interest in determining what regulates the generation of classically activated (M1) vs alternatively activated (M2) macrophages (Mφs) because of the opposing effects that these two Mφ subsets have on tumor progression. We show herein that IL-3 and, to a lesser extent, GM-CSF skew murine Mφ progenitors toward an M2 phenotype, especially in the absence of SHIP. Specifically, the addition of these cytokines, with or without M-CSF, to adherence-or lineage-depleted (Lin−) SHIP−/− bone marrow (BM) cells induces high levels of the M2 markers, arginase I, and Ym1 in the resulting mature Mφs. These in vitro-derived mature Mφs also display other M2 characteristics, including an inability to enhance anti-CD3-stimulated splenic T cell secretion of IFN-γ and low IL-12 and high IL-10 production in response to LPS. Not surprisingly, given that IL-3 and GM-CSF utilize STAT5 to trigger many downstream signaling pathways, this M2 phenotype is suppressed when STAT5−/− BM cells are used. Unexpectedly, however, this M2 phenotype is also suppressed when STAT6−/− BM cells are used, suggesting that IL-4-or IL-13-induced signaling might be involved. Consistent with this, we found that IL-3 and GM-CSF stimulate the production of IL-4, especially from SHIP−/− Lin− BM cells, and that neutralizing anti-IL-4 Abs block IL-3-induced M2 skewing. Moreover, we found that basophil progenitors within the Lin− BM are responsible for this IL-3-and GM-CSF-induced IL-4 production, and that SHIP represses M2 skewing not by preventing skewing within Mφs themselves but by inhibiting IL-4 production from basophils.