BCR-ABL is a chimeric oncogene implicated in the pathogenesis of Philadelphia chromosome-positive human leukemias. BCR first exon sequences specifically activate the tyrosine kinase and transforming potential of BCR-ABL. We have tested the hypothesis that activation of BCR-ABL may involve direct interaction between BCR sequences and the tyrosine kinase regulatory domains of ABL. Full-length c-BCR as well as BCR sequences retained in BCR-ABL bind specifically to the SH2 domain of ABL. The binding domain has been localized within the first exon of BCR and consists of at least two SH2-binding sites. This domain is essential for BCR-ABL-mediated transformation. Phosphoserine/phosphothreonine but not phosphotyrosine residues on BCR are required for interaction with the ABL SH2 domain. These findings extend the range of potential SH2-protein interactions in growth control pathways and suggest a function for SH2 domains in the activation of the BCR-ABL oncogene as well as a role for BCR in cellular signaling pathways.