Stimulation of growth factor receptors with tyrosine kinase activity is followed by rapid receptor dimerization, tyrosine autophosphorylation and phosphorylation of signalling molecules such as phospholipase C gamma (PLC gamma) and the ras GTPase-activating protein. PLC gamma and GTPase-activating protein bind to specific tyrosine-phosphorylated regions in growth factor receptors through their src-homologous SH2 domains. Growth factor-induced tyrosine phosphorylation of PLC gamma is essential for stimulation of phosphatidylinositol hydrolysis in vitro and in vivo. We have shown that a short phosphorylated peptide containing tyrosine at position 766 from a conserved region of the fibroblast growth factor (FGF) receptor is a binding site for the SH2 domain of PLC gamma (ref. 8). Here we show that an FGF receptor point mutant in which Tyr 766 is replaced by a phenylalanine residue (Y766F) is unable to associate with and tyrosine-phosphorylate PLC gamma or to stimulate hydrolysis of phosphatidylinositol. Nevertheless, the Y766F FGF receptor mutant can be autophosphorylated, and can phosphorylate several cellular proteins and stimulate DNA synthesis. Our data show that phosphorylation of the conserved Tyr 766 of the FGF receptor is essential for phosphorylation of PLC gamma and for hydrolysis of phosphatidylinositol, but that elimination of this hydrolysis does not affect FGF-induced mitogenesis.