Receptor-mediated modulation of ion channels generally involves G-proteins, phosphorylation, or both in combination. The sigma receptor, which modulates voltage-gated K+ channels, is a novel protein with no homology to other receptors known to modulate ion channels. In the present study patch clamp and photolabelling techniques were used to investigate the mechanism by which sigma receptors modulate K+ channels in peptidergic nerve terminals. The sigma receptor photoprobe iodoazidococaine labelled a protein with the same molecular mass (26 kDa) as the sigma receptor protein identified by cloning. The sigma receptor ligands pentazocine and SKF10047 modulated K+ channels, despite intra-terminal perfusion with GTP-free solutions, a G-protein inhibitor (GDPbetaS), a G-protein activator (GTPgammaS) or a non-hydrolysable ATP analogue (AMPPcP). Channels in excised outside-out patches were modulated by ligand, indicating that soluble cytoplasmic factors are not required. In contrast, channels within cell-attached patches were not modulated by ligand outside a patch, indicating that receptors and channels must be in close proximity for functional interactions. Channels expressed in oocytes without receptors were unresponsive to sigma receptor agonists, ruling out inhibition through a direct drug interaction with channels. These experiments indicate that sigma receptor-mediated signal transduction is membrane delimited, and requires neither G-protein activation nor protein phosphorylation. This novel transduction mechanism is mediated by membrane proteins in close proximity, possibly through direct interactions between the receptor and channel. This would allow for more rapid signal transduction than other ion channel modulation mechanisms, which in the present case of neurohypophysial nerve terminals would lead to the enhancement of neuropeptide release.