β-Dystroglycan is a ubiquitously expressed integral membrane protein that undergoes tyrosine phosphorylation in an adhesion-dependent manner. However, it remains unknown whether tyrosine-phosphorylated β-dystroglycan interacts with SH2 domain containing proteins. Here, we show that the tyrosine phosphorylation of β-dystroglycan is constitutively elevated in v-Src transformed cells. We next reconstituted this phosphorylation event in vivo by transiently coexpressing wild-type c-Src with a fusion protein containing full-length β-dystroglycan. Our results demonstrate that Src-induced tyrosine phosphorylation of β-dystroglycan is strictly dependent on the presence of a PPxY motif at its extreme C-terminus. In the nonphosphorylated state, this PPxY motif is normally recognized as a ligand by the WW domain; phosphorylation at this site blocks the binding of certain WW domain containing proteins. Using a GST fusion protein carrying the cytoplasmic tail of β-dystroglycan, we identified five SH2 domain containing proteins that interact with β-dystroglycan in a phosphorylation-dependent manner, including c-Src, Fyn, Csk, NCK, and SHC. We localized this binding activity to the PPxY motif by employing a panel of β-dystroglycan-derived phosphopeptides. In addition, tyrosine phosphorylation of β-dystroglycan in vivo resulted in the coimmunoprecipitation of the same SH2 domain containing proteins, and this binding event required the β-dystroglycan C-terminal PPxY motif. We discuss the possibility that tyrosine phosphorylation of the PPxY motif within β-dystroglycan may act as a regulatory switch to inhibit the binding of certain WW domain containing proteins, while recruiting SH2 domain containing proteins.