Protein tyrosine kinases (PTKs) are a group of closely related enzymes that have evolutionarily diverged from serine/threonine kinases (STKs) to regulate pathways associated with multi-cellularity. Evolutionary divergence of PTKs from STKs has occurred through accumulation of mutations in the active site as well as in the commonly conserved hydrophobic core. While the functional significance of active site variations is well understood, relatively little is known about how hydrophobic core variations contribute to PTK evolutionary divergence. Here, using a combination of statistical sequence comparisons, molecular dynamics simulations, mutational analysis and in vitro thermostability and kinase assays, we investigate the structural and functional significance of key PTK-specific variations in the kinase core. We find that the nature of residues and interactions in the hydrophobic core of PTKs is strikingly different from other protein kinases, and PTK-specific variations in the core contribute to functional divergence by altering the stability and dynamics of the kinase domain. In particular, a functionally critical STK-conserved histidine that stabilizes the regulatory spine in STKs is selectively mutated to an alanine, serine or glutamate in PTKs, and this loss-of-function mutation is accommodated, in part, through compensatory PTK-specific interactions in the core. In particular, a PTK-conserved phenylalanine in the I-helix appears to structurally and functionally compensate for the loss of STK-histidine by interacting with the regulatory spine, which has far-reaching effects on enzyme activity, inhibitor sensing, and stability. We propose that hydrophobic core variations provide a selective advantage during PTK evolution by increasing the conformational flexibility, and therefore the allosteric potential of the kinase domain. Our studies also suggest that Tyrosine Kinase Like kinases such as RAF are intermediates in PTK evolutionary divergence inasmuch as they share features of both PTKs and STKs in the core. Finally, our studies provide an evolutionary framework for identifying and characterizing disease and drug resistance mutations in the kinase core.