In this chapter, we have described the biophysical investigations which have dissected the mechanisms of SH2 domain function. Due to nearly a decade and a half of investigation on SH2 domains, much about their binding mechanism has been characterized. SH2 domains have been found to have a positively charged binding cavity, largely conserved between different SH2 domains, which coordinates binding of the pTyr in the target. The ionic interactions between this pocket and the pTyr, in particular, between Arg beta B5 and the phosphate, provide the majority of the binding energy stabilizing SH2 domain-target interactions. The specificity in SH2 domain-target interactions emanates most often from the interactions between the residues C-terminal to the pTyr in the target and the specificity determining residues in the C-terminal half of the SH2 domain. However, the interactions in the specificity determining region of SH2 domains are weak, and hence single SH2 domains show only a modest level of specificity for tyrosine phosphorylated targets. Greater specificity in SH2 domain-containing protein-tyrosine phosphorylated target interactions can be achieved by placing SH2 domains in tandem (as is often found) or possibly through specific localization of SH2 domain-containing proteins within the cell. Although a relatively good understanding of how SH2 domains function in isolation has been obtained, the ways in which SH2 domain binding is coupled to allosteric transmission of signals in larger SH2 domain-containing proteins are still not clear. Hence, the future should bring further investigations of the mechanisms by which SH2 domain ligation alters the enzymatic activity and cellular localization of SH2 domain-containing proteins.