The phosphotyrosine interaction (PI)/phosphotyrosine binding (PTB) domain of Shc binds specific tyrosine-phosphorylated motifs found on activated growth factor receptors and proteins such as polyoma virus middle T antigen (MT). Phenylalanine 198 (Phe198) has been identified as a crucial residue involved in the interaction of the Shc PI/PTB with phosphopeptides. In NIH 3T3 cells expressing MT, p52 Shc carrying the F198V mutation is weakly phosphorylated and does not bind MT or Grb2. Overexpression of the PI/PTB domain alone as Shc amino acids 1-238 acted in a dominant interfering fashion blocking MT-induced transformation. However, expression of a slightly longer construct, Shc 1-260, which encompasses Tyr239/Tyr240, a novel Shc tyrosine phosphorylation site, did not block transformation. This was found to be due to the ability of Shc 1-260 to become tyrosine-phosphorylated and bind Grb2. Furthermore, full-length Shc in which Tyr239/Tyr240 had been mutated to phenylalanine did not become tyrosine-phosphorylated or bind Grb2 but did inhibit colony formation in soft agar. Conversely, p52 Shc carrying a mutation in the other tyrosine phosphorylation site, Tyr317, became heavily tyrosine-phosphorylated, bound Grb2, and gave rise to colonies in soft agar.