Our laboratory has recently reported that the enzyme phospholipase D2 (PLD2) exists as a ternary complex with PTP1b and the growth factor receptor bound protein 2 (Grb2). Here, we establish the mechanistic underpinnings of the PLD2/Grb2 association. We have identified residues Y-169 and Y-179 in the PLD2 protein as being essential for the Grb2 interaction. We present evidence indicating that Y-169 and Y179 are located within two consensus sites in PLD2 that mediate an SH2 interaction with Grb2. This was demonstrated with an SH2-deficient GSTGrb2 R86K mutant that failed to pull-down PLD2 in vitro. In order to elucidate the functions of the two neighboring tyrosines, we created a new class of deletion and point mutants in PLD2. Phenylalanine replacement of Y-169 (PLD2 Y169F)or Y-179 (PLD2 Y179F) reduced Grb2 binding while simultaneous mutation completely abolished it. The role of the two binding sites on PLD2 was found to be functionally nonequivalent: Y-169 serves to modulate the activity of the enzyme, whereas Y-179 regulates total tyrosine phosphorylation of the protein. Interestingly, binding of Grb2 to PLD2 occurs irrespectively of lipase activity, since Grb2 binds to catalytically inactive PLD2 mutants. Finally, PLD2 residues Y-169 and Y-179 are necessary for the recruitment of Sos, but only overexpression of the PLD2 Y179F mutant resulted in increased Ras activity, p44/42(Erk) phosphorylation and enhanced DNA synthesis. Since Y-169 remains able to modulate enzyme activity and is capable of binding to Grb2 in the PLD2 Y179F mutant, we propose that Y-169 is kept under negative regulation by Y-179. When this is released, Y-169 mediates cellular proliferation through the Ras/MAPK pathway.