Beta-arrestins are multifunctional adaptor proteins, which mediate desensitization, endocytosis, and alternate signaling pathways of seven membrane-spanning receptors (7MSRs). Crystal structures of the basal inactive state of visual arrestin (arrestin 1) and beta-arrestin 1 (arrestin 2) have been resolved. However, little is known about the conformational changes that occur in beta-arrestins upon binding to the activated phosphorylated receptor. Here we characterize the conformational changes in beta-arrestin 2 (arrestin 3) by comparing the limited tryptic proteolysis patterns and matrix-assisted laser desorption/ionization-time of flight mass spectrometry (MALDI-TOF MS) profiles of beta-arrestin 2 in the presence of a phosphopeptide (V(2)R-pp) derived from the C terminus of the vasopressin type II receptor (V(2)R) or the corresponding nonphosphopeptide (V(2)R-np). V(2)R-pp binds to beta-arrestin 2 specifically, whereas V(2)R-np does not. Activation of beta-arrestin 2 upon V(2)R-pp binding involves the release of its C terminus, as indicated by exposure of a previously inaccessible cleavage site, one of the polar core residues Arg(394), and rearrangement of its N terminus, as indicated by the shielding of a previously accessible cleavage site, residue Arg(8). Interestingly, binding of the polyanion heparin also leads to release of the C terminus of beta-arrestin 2; however, heparin and V(2)R-pp have different binding site(s) and/or induce different conformational changes in beta-arrestin 2. Release of the C terminus from the rest of beta-arrestin 2 has functional consequences in that it increases the accessibility of a clathrin binding site (previously demonstrated to lie between residues 371 and 379) thereby enhancing clathrin binding to beta-arrestin 2 by 10-fold. Thus, the V(2)R-pp can activate beta-arrestin 2 in vitro, most likely mimicking the effects of an activated phosphorylated 7MSR. These results provide the first direct evidence of conformational changes associated with the transition of beta-arrestin 2 from its basal inactive conformation to its biologically active conformation and establish a system in which receptor-beta-arrestin interactions can be modeled in vitro.