The critical initiation phase of clathrin-mediated endocytosis (CME) determines where and when endocytosis occurs. Heterotetrameric adaptor protein 2 (AP2) complexes, which initiate clathrin-coated pit (CCP) assembly, are activated by conformational changes in response to phosphatidylinositol-4,5-bisphosphate (PIP2) and cargo binding at multiple sites. However, the functional hierarchy of interactions and how these conformational changes relate to distinct steps in CCP formation in living cells remains unknown. We used quantitative live-cell analyses to measure discrete early stages of CME and show how sequential, allosterically regulated conformational changes activate AP2 to drive both nucleation and subsequent stabilization of nascent CCPs. Our data establish that cargoes containing Yxxφ motif, but not dileucine motif, play a critical role in the earliest stages of AP2 activation and CCP nucleation. Interestingly, these cargo and PIP2 interactions are not conserved in yeast. Thus, we speculate that AP2 has evolved as a key regulatory node to coordinate CCP formation and cargo sorting and ensure high spatial and temporal regulation of CME.