The effect of background neutral density on the ion acceleration region of a magnetic nozzle thruster is investigated through a combination of theoretical models and experiment. Ion velocities are measured in the magnetic nozzle using laser induced fluorescence as the background pressure is raised from 0.98 to 26 μTorr-Xe. It is found that the ion velocity exiting the acceleration region decreases from roughly 12 800 to 10 200 m s−1 as background pressure is increased corresponding to a drop in accelerated ion energy of 37%. Global models are employed to determine discharge properties and to calculate the power consumed by collisions in the plume. It is found that charge exchange collisions in the plume cannot explain the decrease in performance. As an alternative, inelastic electron–neutral collisions in the plume are proposed as the mechanism responsible for the decrease in ion energy, consuming between 1.6% and 39% of the power incident on the plume as background pressure is increased over the range tested. The findings suggest that facility effects can significantly alter plume dynamics and thruster performance even at relatively low background pressures. However, with the validated global models it is possible to make predictions of on orbit ion velocities using data taken at finite background pressures.