CD44 is a cell surface adhesion molecule that plays a role in leukocyte extravasation, leukopoiesis, T lymphocyte activation, and tumor metastasis. The principal known ligand for CD44 is the glycosaminoglycan hyaluronate, (HA), a major constituent of extracellular matrices. CD44 expression is required but is not sufficient to confer cellular adhesion to HA, suggesting that the adhesion function of the receptor is regulated. We recently demonstrated that CD44 in primary leukocytes is phosphorylated in a cell type- and activation state-dependent fashion. In this study we demonstrate that serines 325 and 327 within the cytoplasmic domain of CD44 are required for the constitutive phosphorylation of CD44 in T cells. Furthermore, we demonstrate that cells expressing mutated CD44 containing a serine to glycine substitution at position 325 or a serine to alanine substitution at amino acid 327 are defective in HA binding, CD44-mediated adhesion of T cells to smooth muscle cells, as well as ligand-induced receptor modulation. The effect of these mutations can be partially reversed by a monoclonal anti-CD44 antibody that enhances CD44-mediated HA binding.