In order for cells to respond to their environment, a series of regulated molecular events has to take place. External signalling molecules bind to cellular receptors and thereby trigger the activation of multiple intracellular pathways, which modify cellular phenotypes. The cell-surface receptors for a wide range of polypeptide hormones possess protein tyrosine kinase activity, which is induced by binding of the appropriate extracellular ligand. Tyrosine phosphorylation can act as a molecular switch, by initiating the recruitment of cytoplasmic effector molecules containing Src homology (SH) 2 domains, to activated receptors. These SH2-containing proteins, in turn, regulate intracellular signalling pathways. Here, we discuss the role of tyrosine phosphorylation in triggering signalling pathways, as well as the functions of SH2 domains, which mediate these events through phosphotyrosine-dependent protein-protein interactions.