Fibroblast growth factors (FGF) stimulate growth arrest and differentiation in rat pheochromocytoma PC12 cells. We examined the role of phosphatidylinositol (PI) hydrolysis in FGF-induced differentiation of PC12 cells by exploring the biological and biochemical activity of a mutant FGF receptor 1 (flg) defective in stimulation of PI hydrolysis. We show that point mutation at Tyr-766 (Y766F) of the FGF receptor prevents tyrosine phosphorylation of phospholipase C gamma and eliminates acidic FGF (aFGF)-induced stimulation of PI hydrolysis in PC12 cells. Treatment of PC12 cells expressing either wild-type or the Y766F mutant with aFGF led to tyrosine phosphorylation of Shc, the association of Shc with GRB2, a shift in the electrophoretic mobility of the Ras guanine nucleotide-releasing factor, Sos (son of sevenless), and enhancement in mitogen-activated protein kinase phosphorylation. Moreover, stimulation with aFGF led to a typical neurite outgrowth of PC12 cells expressing either wild-type or the Y766F FGF receptor mutant. These experiments indicate that PI hydrolysis is not essential for FGF-induced neuronal differentiation of PC12 cells. Moreover, the aFGF-induced Ras signaling pathway, which is essential for PC12 cell differentiation, is not affected by elimination of PI hydrolysis.