Src homology 2 (SH2) domains are protein modules (of approximately 100 amino acids) found in many proteins involved in tyrosine kinase signalling cascades. Their function is to bind tyrosine-phosphorylated sequences in specific protein targets. Binding of an SH2 domain to its cognate tyrosine-phosphorylated target links receptor activation to downstream signalling, both to the nucleus to regulate gene expression and throughout the cytoplasm of the cell. This review recapitulates the roles that SH2 domains play in normal and diseased states, describes the successes of SH2 domain research in deciphering their mechanism of action, and provides an overview of the use of SH2 domains as structural templates for the design of inhibitor drugs.