A loop structure, formed by the putative disulfide bridging of Cys198 and Cys209, is a principal element of the ligand binding site in the glycine receptor (GlyR). Disruption of the loop's tertiary structure by Ser mutations of these Cys residues either prevented receptor assembly on the cell surface, or created receptors unable to be activated by agonists or to bind the competitive antagonist, strychnine. Mutation of residues Lys200, Tyr202 and Thr204 within this loop reduced agonist binding and channel activation sensitivities by up to 55-, 520- and 190-fold, respectively, without altering maximal current sizes, and mutations of Lys200 and Tyr202 abolished strychnine binding to the receptor. Removal of the hydroxyl moiety from Tyr202 by mutation to Phe profoundly reduced agonist sensitivity, whilst removal of the benzene ring abolished strychnine binding, thus demonstrating that Tyr202 is crucial for both agonist and antagonist binding to the GlyR. Tyr202 also influences receptor assembly on the cell surface, with only large chain substitutions (Phe, Leu and Arg, but not Thr, Ser and Ala) forming functional receptors. Our data demonstrate the presence of a second ligand binding site in the GlyR, consistent with the three-loop model of ligand binding to the ligand-gated ion channel superfamily.