The Src-homology (SH) 2 domain, found in a variety of proteins, has a binding site for phosphotyrosine-containing peptides. In adaptor proteins such as Grb2, the SH2 domain plays an important role in the assembly of signal transducer complexes. Many nonreceptor tyrosine kinases--e.g., Abl and Src--also contain SH2 domains. Without a functional SH2 domain, these tyrosine kinases retain catalytic activity but lose their biological function. This result suggests that the SH2 domain may be involved in the selection of biologically relevant substrates. We have previously shown that the carboxyl-terminal repeated domain (CTD) of the mammalian RNA polymerase II is a substrate for the Abl but not the Src tyrosine kinase. This specificity is conferred in part by the SH2 domain. The Abl SH2 domain binds the tyrosine-phosphorylated [Tyr(P)] CTD and is required for the processive and stoichiometric phosphorylation of the 52 tyrosines in the CTD. Mutation of the Abl SH2 or exchanging it with that of Src, which does not bind the Tyr(P)-CTD, abolished processivity and reduced the CTD kinase activity without any effect on autophosphorylation or the phosphorylation of nonspecific substrates. These results demonstrate that the SH2 domain of the Abl tyrosine kinase plays an active role in catalysis and suggests that SH2 domain and the tyrosine kinase domain may act in concert to confer substrate specificity.