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 Y(179) 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.