The killer cell lectin-like receptor G1 (KLRG1) is a unique inhibitory receptor expressed on a phenotypically mature subset of resting NK cells as well as subsets of T cells in naive mice. In vivo, pathogenic immune system activation induces dramatic changes in the expression patterns of KLRG1 among the different cell subsets. In order to enhance our understanding of KLRG1 signaling properties and to clarify the functions of KLRG1 on these cells, we identified the broadly expressed N-cadherin molecule as a ligand for KLRG1. We further demonstrate that a second member of this superfamily of adhesion molecules, E-cadherin, binds to KLRG1. Additionally, we show that upon phosphorylation of the immunoreceptor tyrosine-based inhibitory motif (ITIM) tyrosine, KLRG1 recruits both SHIP-1 and SHP-2 but not SHP-1. We also delineate the key KLRG1 ITIM amino acid residues required for optimal association with these phosphatases. Finally, we demonstrate that KLRG1 engagement can inhibit sub-optimal TCR signaling. Taken together, our results indicate that KLRG1 may differentially regulate NK cell and T cell functions through the association with different ligands as well as the recruitment of distinct phosphatases.