To identify functional domains of G-protein-coupled receptors that control pathway activation, ligand discrimination, and receptor regulation, we have used as a model the a-factor receptor (STE2 gene product) of the yeast Saccharomyces cerevisiae. From a collection of random mutations introduced in the region coding for the third cytoplasmic loop of Ste2p, six ste2's alleles were identified by genetic screening methods that increased oa-factor sensitivity 2.5-to 15-fold. The phenotypic effects of ste2'ss and sst2 mutations were not additive, consistent with models in which the third cytoplasmic loop of the a-factor receptor and the regulatory protein Sst2p control related aspects of pheromone response and/or desensitization. Four ste2"sf mutations did not dramatically alter cell surface expression or agonist binding affinity of the receptor; however, they did permit detectable responses to an a-factor antagonist. One ste2"sf allele increased receptor binding affinity for a-factor and elicited stronger responses to antagonist. Results of competition binding experiments indicated that wild-type and representative mutant receptors bound antagonist with similar affinities. The antagonistresponsive phenotypes caused by ste2' alleles were therefore due to defects in the ability of receptors to discriminate between agonist and antagonist peptides. One ste2s' mutation caused rapid, ligand-independent internalization of the receptor. These results demonstrate that the third cytoplasmic loop of the a-factor receptor is a multifunctional regulatory domain that controls pathway activation and/or desensitization and influences the processes of receptor activation, ligand discrimination, and internalization.Cell surface receptors that are coupled to heterotrimeric guanine nucleotide-binding proteins (G proteins) function in signal transduction pathways that allow eukaryotic cells to respond to various hormones, neuroregulatory molecules, and sensory stimuli. In these pathways, receptors program cellular responses by interacting specifically with certain ligands and G proteins. G-protein-coupled receptors are subjected to regulatory processes involving receptor phosphorylation, sequestration, and down-regulation which limit the strength or duration of physiological responses (4,15,36).Recent investigations are beginning to address the molecular mechanisms by which receptors are activated by specific ligands and undergo agonist-induced sequestration and downregulation. An emerging theme is that membrane-spanning as well as cytoplasmic domains of G-protein-coupled receptors can have roles in these processes (12,18,22,39,40,48). Mutagenesis and domain swapping experiments have indicated, for example, that the third cytoplasmic loops of certain mammalian receptors control G-protein activation, receptor sequestration, and responses to partial agonists (6, 10, 11, 13, 19, 28-30, 42, 43). Indeed, in ,-adrenergic receptors, discrete subdomains of the third cytoplasmic loop apparently control subsets of these processes, because mutant...