Analysis of the ability of IFN-alpha to rapidly stimulate genes has led to the identification of a new family of signal transducing factors (STFs). The STF activated by IFN-alpha consists of two members of the STAT (Signal Transducers and Activators of Transcription) family of signaling proteins, Stat1 and Stat2. Sequence comparison of these STATs has determined that they share several conserved domains, the most notable of which is an SH2 domain. Recently, studies have determined that these SH2 domains can mediate a specific association between a STAT and the cytoplasmic domain of the appropriate receptor. Once associated with the receptor, the STATs become activated by an associated tyrosine kinase, whereupon they dissociate from the receptor and dimerize to form active STFs. The SH2 domain has also been implicated in the formation of STAT dimers found in STFs, suggesting it may play multiple roles in signaling. We have carried out a detailed analysis on the role of the Stat1 and Stat2 SH2 domains in the mediation of IFN-alpha stimulated signals. These studies, which have determined that the SH2 domain of Stat1 and Stat2 can mediate homo- as well as heterodimerization, suggest that a single SH2 domain-phosphotyrosyl interaction is sufficient for dimerization. Moreover, they provide the first direct evidence that the target of the SH2 domain is the STAT tyrosine activation site. In addition, these studies implicate the SH2 domain in another step in the signaling cascade, namely mediation of the interaction between STATs and their activating kinases (i.e. the JAKs).