She is an important signalling protein whose overexpression leads to cell transformation in NIH 3T3 fibroblasts. Although the formation of Shc/Grb2 complexes involving She tyrosine residue 317 is necessary to induce this transformation, the She proteins in these Shc-overexpressing cells are not substantially tyrosine-phosphorylated. This observation led to our hypothesis that the non-phosphorylated Tyr317-containing region of She might have specific affinity for the Grb2 protein. We show here that cell-permeable peptides encompassing the She Tyr317 region, (FDD)-F-312-PSYVNVQNL(323), can bind to the SH2 domain of Grb2 regardless of the state of tyrosine phosphorylation. When delivered into cells, both phosphorylated and non-phosphorylated She peptides inhibit growth factor-induced Shc/Grb2 protein-protein interaction, The non-phosphorylated She peptides with single point mutations at Asp313, Asp314, or Tyr317 are inactive, suggesting that these residues play an important role in Grb2 protein recognition. Our findings represent the first paradigm of the specific interaction between an unphosphorylated tyrosine-containing region and an SH2 domain and have important implications for understanding the mechanism of cell transformation by She overexpression. (C) 1997 Academic Press.