Luminal proteins of the endoplasmic reticulum (ER) share a common carboxy-terminal tetrapeptide which is necessary and sufficient for their retention in the ER. In animal cells this retention signal is usually KDEL, whereas the yeast Kluyveromyces lactis uses the closely related sequences HDEL and DDEL. The yeast ERD2 gene has been shown to determine the capacity and specificity of the retention system, implying that it encodes a sorting receptor. This receptor is thought to retrieve escaped ER proteins from the Golgi, where a human homologue of this protein has been located. This dual function of binding and retrieval requires a receptor with highly specific binding at a specific location in the cell (Golgi but not ER). Here, a region of the ERD2 protein responsible for the specificity of ligand recognition has been identified using three independent approaches. A single amino acid residue is shown to selectively affect HDEL retention: substitution of residue 51 of the K. lactis receptor is sufficient to abolish recognition of HDEL but not DDEL, generating a novel retention phenotype.