The Escherichia coli biotin repressor BirA is an allosteric transcription regulatory protein to which binding of the small ligand corepressor biotinyl-5'-AMP promotes homodimerization and subsequent DNA binding. Structural data indicate that the apo or unliganded repressor is characterized by four partially disordered loops that are ordered in the ligand-bound dimer. While three of these loops participate directly in the dimerization, the fourth, consisting of residues 212-234 is distal to the interface. This loop, which is ordered around the adenine ring of the adenylate moiety in the BirA.adenylate structure, is referred to as the adenylate-binding loop (ABL). Although residues in the loop do not interact directly with the ligand, a hydrophobic cluster consisting of a tryptophan and two valine side-chains assembles over the adenine base. Results of previous measurements suggest that folding of the ABL is integral to the allosteric response. This idea and the role of the hydrophobic cluster in the process were investigated by systematic replacement of each side-chain in the cluster with alanine and analysis of the mutant proteins for small ligand binding and dimerization. Isothermal titration calorimetry measurements indicate defects in adenylate binding for all ABL variants. Additionally, sedimentation equilibrium measurements reveal that coupling between adenylate binding and dimerization is compromised in each mutant. Partial proteolysis measurements indicate that the mutants are defective in ligand-linked folding of the ABL. These results indicate that the hydrophobic cluster is critical to the ligand-induced disorder-to-order transition in the ABL and that this transition is integral to the allosteric response in the biotin repressor.