Herein we report that interferon-gamma (IFN gamma) induces the rapid and reversible tyrosine phosphorylation of the IFN gamma receptor. Using a panel of receptor intracellular domain mutants, we show that a membrane-proximal LPKS sequence (residues 266-269) is required for ligand-induced tyrosine kinase activation and/or kinase-receptor association and biological responsiveness, and a functionally critical membrane-distal tyrosine residue (Y440) is a target of the activated enzyme. The biological significance of Y440 phosphorylation was demonstrated by showing that a receptor-derived nonapeptide corresponding to receptor residues 436-444 and containing phosphorylated Y440 bound specifically to p91, blocked p91 phosphorylation and inhibited the generation of an active p91-containing transcription factor complex. In contrast, nonphosphorylated wild-type, phosphorylated mutant, or phosphorylated irrelevant peptides did not. Moreover, the phosphorylated Y440-containing peptide did not interact with a related but distinct latent transcription factor (p113) which is activatible by IFN alpha but not IFN gamma. These results thus document the specific and inducible association of p91 with the phosphorylated IFN gamma receptor and thereby elucidate the mechanism by which ligand couples the IFN gamma receptor to its signal transduction system.