Stimulation of the insulin receptor (IR) results in tyrosine phosphorylation of the intermediate molecules insulin receptor substrate-1 (IRS-1), IRS-2, and Shc, which then couple the IR to downstream signaling pathways by serving as binding sites for signaling molecules with SH2 domains. It has been proposed that direct binding of IRS-1, IRS-2, and Shc to an NPX-Tyr(P) motif in the juxtamembrane region of the IR is required for tyrosine phosphorylation of these molecules by the IR. In this regard, Shc and IRS-1 contain domains that are distinct from SH2 domains, referred to as the phosphotyrosine binding (PTB) or phosphotyrosine interaction (PI) domains, which bind phosphotyrosine in the context of an NPX-Tyr(P) motif. To further clarify the role of the Shc PTB/PI domain, we identified a mutation in this domain that abrogated binding of Shc to the IR in vitro. Interestingly, this mutation completely abolished Shc phosphorylation by the IR in vivo whereas mutation of the arginine in the FLVRES motif of the Shc SH2 domain did not affect Shc phosphorylation by insulin. In addition, we identified specific amino acids on the IR that are required for the IR to stimulate Shc but not IRS-1 phosphorylation in vivo. As with the PTB/PI domain Shc mutant, the ability of these mutant receptors to phosphorylate Shc correlates with the binding of the PTB/PI domain of Shc to similar sequences in vitro. These findings support a model in which binding of the PTB/PI domain of Shc directly to the NPX-Tyr(P) motif on the IR mediates Shc phosphorylation by insulin.