Ligand binding of multi-chain antigen receptors and hematopoietin/cytokine receptors results in rapid activation of protein tyrosine kinase (PTK)-dependent signalling molecules such as phosphatidylinositol 3-kinase (PI 3-kinase). Co-precipitation studies have shown that Src-related PTK, such as Lyn, associates with the p85 regulatory subunit of PI 3-kinase via SH2 and SH3 domain binding with their cognate ligands. More recent studies have shown that the proto-oncogene product Cbl co-precipitates with p85 following engagement of cytokine and antigen receptors. As opposed to in vitro co-precipitation studies, the yeast two-hybrid screen reveals in vivo protein-protein interactions. Using the yeast two-hybrid screen, we demonstrate an in vivo association of Lyn's SH3 and SH2 domains with the proline-rich domain of Cbl. Lyn's SH3 and SH2 domains do not interact with p85 in the yeast two-hybrid screen, as would be predicted from glutathione-S-transferase (GST) fusion protein pull-down or co-immunoprecipitation studies from whole cell lysates. However, the SH3 domain of p85 interacts with the proline-rich domain of Cbl. When yeast were transformed with catalytic Lyn, an interaction between p85's SH2 domain and Cbl occurred. From the data, we propose the following three step process of PI 3-kinase activation: (1) complexes of Lyn-Cbl and Cbl-p85 exist without ligand stimulation, (2) upon ligand binding, Lyn becomes active and phosphorylates Cbl, and (3) Cbl's tyrosine phosphorylated residue serves as a docking site for the SH2 domains of p85 - thereby stabilizing the complex and activating PI 3-kinase. The yeast two-hybrid system can be used to dissect the precise mechanisms of in vivo protein-protein interactions, including those between phosphotyrosine and SH2-containing proteins.