Capsaicin (CAP) excites small sensory neurons, causing pain, neurogenic inflammation, and other visceral reflexes. These effects have been proposed to be the result of CAP activation of a nonselective cation current. It is generally assumed that CAP binds to an extracellular domain of the membrane receptor. However, the exact binding site is not known because of the lipophilic nature of CAP. To determine whether the binding domain is extracellular or intracellular, we tested the effect of a synthetic watersoluble CAP analog, DA-5018⅐HCl, on current activation. CAP activated the 45 pS (at Ϫ60 mV) nonselective cation channel from either side of the membrane. However, DA-5018⅐HCl, which had a greater potency and efficacy than CAP, activated the channels only from the cytosolic side of the patch membrane in a capsazepine, a CAP receptor antagonist, reversible manner. When applied extracellularly, DA-5018⅐HCl did not, but CAP did, activate whole-cell currents in sensory neurons, as well as in oocytes expressing vanilloid receptor 1, a recently cloned CAP receptor. Hydrogen ions, reported as a possible endogenous activator of cation current, failed to elicit any current when acidic medium (pH 5.0-6.0) was applied intracellularly, indicating that H ϩ does not mediate the CAP effect. These results indicate that CAP and its analog bind to the cytosolic domain of the CAP receptor and suggest that an endogenous CAP-like substance other than H ϩ may be present in the cell.