Trypsin-like serine proteases regulate many important physiological processes including digestion, blood coagulation, tissue remodelling, complement activation and fibrinolysis. It is well known that ligand binding to allosteric sites modulates the function of the active site region through conformational and/or dynamic changes leading to a change in protease activity and altered substrate specificity. Furthermore, increasing biophysical evidence supports the existence of multiple active and inactive conformational states. However, molecular details about sparsely populated protease conformations, and how ligands modulate the activity of a given protease remains largely elusive. Here we report the X-ray crystal structure of an unappreciated inactive conformational state of the serine protease urokinase-type plasminogen activator (uPA). Next, two distinct uPA conformations were stabilized by different single domain camelid antibodies – an active conformation captured by an active site binding (orthosteric) nanobody (Nb22) and an inactive conformation captured by an allosteric nanobody (Nb7). By combining X-ray crystallography and hydrogen deuterium-exchange mass spectrometry, we identify the mechanism of allostery, which explains at the molecular level how ligand binding regulates uPA activity by changing the dynamics of several surface-exposed loops surrounding the active site region. Collectively, our data supports a model which assumes equilibrium amongst at least three conformational states and shows that ligands modulate the biological activity of the protease by differentially stabilizing a specific protease conformation.