SH2 domains are modular components of a wide range of functionally diverse proteins involved in mammalian signal transduction including enzymes, adaptors, regulators and transcription factors. Members of the SH2 domain family recognize a wide variety of short tyrosine phosphorylated peptide motifs. Biochemical and structural studies have revealed key aspects of these interactions that account for their ability to discriminate between different sequence motifs. While the mechanism of phosphotyrosine (pTyr) recognition is remarkably conserved among the SH2 domains, differences in recognition of phosphopeptide residues N and especially C-terminal to the pTyr have been identified that contribute to selectivity. The basis for SH2- phosphopeptide recognition is discussed in light of the available structural and biochemical data with a focus on recent information regarding SH2 domains within a new class found within the signal transducer and activator of transcription (STAT) protein family.