We previously demonstrated that the intracellular third loop (i3 loop) of angiotensin II type 2 receptor (AT2) plays a key role in mediating the biological functions of this receptor. To determine which residues are important for AT2 signaling, mutated receptors with serial deletions within the i3 loop were stably expressed in PC12 cells. Deletion of residues 240-244 within the intermediate portion of the i3 loop resulted in a complete loss of AT2-mediated apoptosis, inhibition of extracellular signal-regulated kinases (ERK), and SHP-1 activation. In contrast to well characterized heptahelical receptors, the AT2 functions were not affected by deletions of the amino- or carboxyl-terminal portions of the i3 loop. Alanine substitutions further demonstrated that lysine 240, asparagine 242, and serine 243 are key residues for AT2-induced apoptosis, ERK inhibition, and SHP-1 activation. To examine whether a functional link exists between activation of SHP-1 and apoptosis, we used a catalytically inactive SHP-1 mutant and demonstrated that preventing SHP-1 activation strongly attenuates AT2-induced ERK inhibition and apoptosis. Our data demonstrate that the intermediate portion of the i3 loop is important for AT2 function and that SHP-1 is a proximal effector of the AT2 receptor that is implicated in the inhibition of ERKs and in the apoptotic effect of this receptor.