I have a 02 suburban 4x4. I just replaced the rear end. Replaced fluids and filter in motor, tranny, and transfer case. I was driving it for a few days and noticed the transmission was slipping. I checked fluid which was low and added to the full mark. A week later, at the stop sign I take off and it sounded like it popped out of gear. I let the rpms come down and it made a loud grinding noise and went back into gear. A few days later, same thing happened and only a mile down the road it seemed to grind down into 2nd gear from Drive.

Is this a transmission problem or could this be a transfer case problem?

 

Sounds like it was trying to go into 4x4-lo by it's self. You probably have a NP-8 Case, and the reduction you mentioned (Drive to 2nd gear) is comparable to the 2.7 ratio.

Did you notice any of the Dash Indicators showing it was trying to change ?

Possibly if you were to transfer into 4Lo and back a few times, it may correct it's self.

 

Thanks for the info, I didn't notice any indicator lights on when it happened. I'll keep an eye out next time. I did, however, put the truck on jack stands and lifted the rear tires off the ground. All gears except for 2nd turn at idle. I had to gas a little in 2nd gear to get the tires turning.

 

Though your problem is a bit different than most Case shifting problems, most times lack of use allows the Fluid to get goopy. Many times a Fluid change and as I said before, shifting back and forth (in/out) 4WD-lo often gets things working again.