The adapter protein Shc has been implicated in mitogenic signaling via growth factor receptors, cytokine receptors, and antigen receptors on lymphocytes. Besides the well characterized interaction of Shc with molecules involved in Ras activation, Shc also associates with a 145-kDa tyrosine- phosphorylated protein upon triggering via antigen receptors and many cytokine receptors. This 145-kDa protein has been recently identified as an SH2 domain containing 5'-inositol phosphatase (SHIP) and has been implicated in the regulation of growth and differentiation in hematopoietic cells. In this report, we have addressed the molecular details of the interaction between Shc and SHIP in vivo. During T cell receptor signaling, tyrosine phosphorylation of SHIP and its association with Shc occurred only upon activation. We demonstrate that the phosphotyrosine binding domain of Shc is necessary and sufficient for its association with tyrosine-phosphorylated SHIP. Through site-directed mutagenesis, we have identified two tyrosines on SHIP, Tyr-917, and Tyr-1020, as the principal contact sites for the Shc- phosphotyrosine binding domain. Our data also suggest a role for the tyrosine kinase Lck in phosphorylation of SHIP. We also show that the SH2 domain of SHIP is dispensable for the Shc-SHIP interaction in vivo. These data have implications for the localization of the Shc-SHIP complex and regulation of SHIP function during T cell receptor signaling.