Zn-alpha(2)-glycoprotein (ZAG) is a soluble lipid-mobilizing factor associated with cancer cachexia and is a novel adipokine. Its X-ray crystal structure reveals a poly(ethylene glycol) molecule, presumably substituting for a higher affinity natural ligand, occupying an apolar groove between its alpha(1) and alpha(2) domain helices that corresponds to the peptide binding groove in class I MHC proteins. We previously provided evidence that the groove is a binding site for hydrophobic ligands that may relate to the protein's signaling function and that the natural ligands are probably (polyunsaturated) fatty acid-like. Using fluorescence-based binding assays and site-directed mutagenesis, we now demonstrate formally that the groove is indeed the binding site for hydrophobic ligands. We also identify amino acid positions that are involved in ligand binding and those that control the shape and exposure to solvent of the binding site itself. Some of the mutants showed minimal effects on their binding potential, one showed enhanced binding, and several were completely nonbinding. Particularly notable is Arg-73, which projects into one end of the binding groove and is the sole charged amino acid adjacent to the ligand. Replacing this amino acid with alanine abolished ligand binding and closed the groove to solvent. Arg-73 may therefore have an unexpected dual role in binding site access and anchor for an amphiphilic ligand. These data add weight to the distinctiveness of ZAG among MHC class I-like proteins in addition to providing defined binding-altered mutants for cellular signaling studies and potential medical applications.