The prevailing understanding of various aspects of biochemical processes, including folding, stability, intermolecular interactions, and the binding of metals, substrates, and inhibitors, is derived from studies carried out under dilute and homogeneous conditions devoid of a crowding-related environment. The effect of crowding-induced modulation on the structure and stability of native and magnesium-dependent Chemotaxis Y (CheY), a bacterial signaling protein, was probed in the presence and absence of poly(ethylene glycol) (PEG). A combined analysis from circular dichroism, intrinsic and extrinsic fluorescence, and tryptophan fluorescence lifetime changes indicates that PEG perturbs the structure but leaves the thermal stability largely unchanged. Intriguingly, while the stability of the protein is enhanced in the presence of magnesium under dilute buffer conditions, PEG-induced crowding leads to reduced thermal stability in the presence of magnesium. Nuclear magnetic resonance (NMR) chemical shift perturbations and resonance broadening for a subset of residues indicate that PEG interacts specifically with a subset of hydrophilic and hydrophobic residues found predominantly in α helices, β strands, and in the vicinity of the metal-binding region. Thus, PEG prompted conformational perturbation, presumably provides a different situation for magnesium interaction, thereby perturbing the magnesium-prompted stability. In summary, our results highlight the dominance of enthalpic contributions between PEG and CheY via both hydrophilic and hydrophobic interactions, which can subtly affect the conformation, modulating the metal-protein interaction and stability, implying that in the context of cellular situation, structure, stability, and magnesium binding thermodynamics of CheY may be different from those measured in dilute solution.