RET/PTC oncogenes, generated by chromosomal rearrangements in papillary thyroid carcinomas, are constitutively activated versions of proto-RET, a gene coding for a receptor-type tyrosine kinase (TK) whose ligand is still unknown. RET/PTCs encode fusion proteins in which proto-RET TK and C-terminal domains are fused to different donor genes. The respective Ret/ptc oncoproteins display constitutive TK activity and tyrosine phosphorylation. We found that Ret/ptcs associate with and phosphorylate the SH2-containing transducer phospholipase Cgamma (PLCgamma). Two putative PLCgamma docking sites, Tyr-505 and Tyr-539, have been identified on Ret/ptc2 by competition experiments using phosphorylated peptides modelled on Ret sequence. Transfection experiments and biochemical analysis using Tyr-->Phe mutants of Ret/ptc2 allowed us to rule out Tyr-505 and to identify Tyr-539 as a functional PLCgamma docking site in vivo. Moreover, kinetic measurements showed that Tyr-539 is able to mediate high-affinity interaction with PLCgamma. Mutation of Tyr-539 resulted in a drastically reduced oncogenic activity of Ret/ptc2 on NIH 3T3 cells (75 to 90% reduction) both in vitro and in vivo, which correlates with impaired ability of Ret/ptc2 to activate PLCgamma. In conclusion, this paper demonstrates that Tyr-539 of Ret/ptc2 (Tyr-761 on the proto-RET product) is an essential docking site for the full transforming potential of the oncogene. In addition, the present data identify PLCgamma as a downstream effector of Ret/ptcs and suggest that this transducing molecule could play a crucial role in neoplastic signalling triggered by Ret/ptc oncoproteins.