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Abstract Background We investigated the inhibitory effect of pantoprazole on signal transducer and activator of transcription 3 (STAT3) activity and invasiveness of gastric adenocarcinoma cells, and the role of SH2-containing protein tyrosine phosphatase 1 (SHP-1) in mediating role. Methods We used AGS and MKN-28 cells because of reduced SHP-1 and preserved p-STAT3 expression. Western blot, wound closure assay, Matrigel invasion assay and 3-D culture invasion assay were performed. Pharmacologic inhibitor of SHP-1 and siRNA were used for validation of the role of SHP-1. Results We observed that pantoprazole at 40, 80, and 160 μg/ml upregulated SHP-1 and downregulated p-STAT3 expression in a dose-dependent manner in AGS and MKN-28 cells. Furthermore, pantoprazole significantly downregulated mesenchymal markers (Snail1 and vimentin), upregulated epithelial marker (E-cadherin), and inhibited migration and invasion of AGS and MKN-28 cells. To validate the role of SHP-1 in inhibition of STAT3 activity by pantoprazole in gastric cancer cells, we performed pharmacologic inhibition (pervanadate) or knockdown of SHP-1 before pantoprazole treatment, which significantly attenuated the suppression of p-STAT3 and anti-migration and invasion effect by pantoprazole in AGS cells. In xenograft tumor model, tumor volume was significantly reduced by intraperitoneal injection of pantoprazole, with upregulation of SHP-1 and downregulation of p-STAT3, which were attenuated by concomitant injection of pervanadate. Conclusion Our data suggest that the inhibitory effect of pantoprazole on cellular migration and invasion might be through inducing SHP-1 in gastric cancer cells.