The mammalian shc gene encodes two overlapping proteins of 46 and 52 kDa, each with a C-terminal Src homology 2 (SH2) domain and an N-terminal glycine/proline-rich sequence, that induce malignant transformation when overexpressed in mouse fibroblasts. p46shc, p52shc, and an additional 66-kDa shc gene product become highly tyrosine phosphorylated in Rat-2 cells transformed by the v-src or v-fps oncogene. Experiments using temperature-sensitive v-src and v-fps mutants indicate that Shc tyrosine phosphorylation is rapidly induced upon activation of the v-Src or v-Fps tyrosine kinases. These results suggest that Shc proteins may be directly phosphorylated by the v-Src and v-Fps oncoproteins in vivo. In cells transformed by v-src or v-fps, or in normal cells stimulated with epidermal growth factor, Shc proteins complex with a poorly phosphorylated 23-kDa polypeptide (p23). Activated tyrosine kinases therefore regulate the association of Shc proteins with p23 and may thereby control the stimulation of an Shc-mediated signal transduction pathway. The efficient phosphorylation of Shc proteins and the apparent induction of their p23-binding activity in v-src- and v-fps-transformed cells are consistent with the proposition that the SH2-containing Shc polypeptides are biologically relevant substrates of the oncogenic v-Src and v-Fps tyrosine kinases.