We have previously demonstrated that the non-catalytic Src homology 2 (SH2) domain is required for both positive and negative regulation of the catalytic function of the lymphocyte-specific tyrosine protein kinase p56lck. Indeed, the ability of activated p56lck molecules (tyrosine 505 to phenylalanine 505 mutants) to enhance T-cell receptor (TCR)-induced tyrosine protein phosphorylation is dramatically reduced by deletion of the SH2 domain. Paradoxically, removal of the SH2 sequence also results in constitutive elevation of the catalytic function of wild-type Lck polypeptides, rendering them capable of oncogenic transformation of rodent fibroblasts. As SH2 sequences can mediate binding to phosphotyrosine-containing peptides, the ability of the Lck SH2 domain to interact with tyrosine-phosphorylated proteins was tested. We found that the SH2 sequence of p56lck can bind several of the TCR-regulated tyrosine phosphorylation substrates in vitro. One of the substrates, an 80-kilodalton (kDa) phosphoprotein (p80) showed the tightest binding to the SH2 domain of Lck. Additionally, it was observed that the SH2 domain of Lck can bind a synthetic peptide containing the phosphorylated carboxy-terminal tyrosine 505 of p56lck. Indirect evidence indicating that the SH2 region interacts with the tyrosine-phosphorylated carboxy terminus of Lck in vivo was also obtained. As deletion of the SH2 domain or mutation of tyrosine 505 results in p56lck activation in vivo, it is conceivable that interactions between these two regions impose a conformation that is unfavorable to phosphorylation of intracellular substrates. Collectively, these findings suggest that the SH2 domain modulates the catalytic function of Lck through complex interactions with phosphotyrosine-containing proteins.