The SH2 domain of the STAT family of transcription factors is essential for STAT binding to phosphorylated cytoplasmic domains of activated cytokine receptors. Furthermore, the same domain mediates dimerization of activated STAT monomers, a prerequisite for DNA binding by this family of proteins. To identify amino acid residues within the STAT protein that mediate these various interactions, we have carried out an extensive mutational analysis of the Stat6 SH2 domain. Recombinant proteins carrying C-terminal deletions or double alanine substitutions were expressed in mammalian and insect cells and assayed for DNA binding, transcription activation, tyrosine phosphorylation, and the ability to interact with a tyrosine-phosphorylated peptide derived from the interleukin-4 receptor signaling chain. From these studies, we have identified amino acids that are required for both DNA binding and interleukin-4 receptor interaction, as well as residues that when mutated impair only one of the two functions. Our results suggest that the structural homology between the SH2 domain of Stat6 and that of the distantly related Src protein may be higher than predicted on the basis of primary amino acid sequence comparisons. However, the two types of SH2 domains may differ at their C-terminal ends.