A fundamental issue in molecular pharmacology is to define how agonist:receptor interaction differs from that of antagonist:receptor. The V(1a) receptor (V(1a)R) is a member of a family of related G-protein-coupled receptors that are activated by the neurohypophysial peptide hormone arginine-vasopressin (AVP). Here we define a short subdomain of the N-terminus of the V(1a)R from Glu(37) to Asn(47) that is an absolute requirement for binding AVP and other agonists. In marked contrast to the situation for agonists, deleting this segment has little or no effect on the binding of either peptide or non-peptide antagonists. In addition, we established that this subdomain was crucial for receptor activation and second messenger generation. The oxytocin receptor (OTR) also binds AVP with high affinity but exhibits a different pharmacological profile to the V(1a)R. Substitution of the N-terminus of the V(1a)R with the corresponding sequence from the OTR generated a chimeric receptor (OTR(N)-V(1a)R). The presence of the OTR N-terminus recovered high affinity agonist binding such that the OTR(N)-V(1a)R possessed almost wild-type V(1a)R pharmacology and signaling. Consequently, a domain within the N-terminus is required for agonist binding but it does not provide the molecular discriminator for subtype-selective agonist recognition. Cotransfection and peptide mimetic studies demonstrated that this N-terminal subdomain had to be contiguous with the receptor polypeptide to be functional. This study establishes that a segment of the V(1a)R N-terminus has a pivotal role in the mechanism of agonist binding and provides molecular insight into key differences between the interaction of agonists and antagonists with a peptide receptor family.