Pentameric ligand‐gated ion channels (pLGICs) or Cys‐loop receptors are a class of ion channels involved in fast synaptic transmission in the central and peripheral nervous systems. Members of this family include the nicotinic acetylcholine receptors, serotonin type‐3 receptors, GABAA/C (gamma‐aminobutyric acid) receptors and glycine receptors. These receptors are the target for a wide variety of therapeutics, including benzodiazepines such as diazepam (Valium), which act as positive allosteric modulators (PAMs) of the GABAA receptor and are prescribed as a sedative, anxiolytic or anti‐epileptic. In this study, we employed the prokaryote ligand‐gated ion channel ELIC as a model to understand the structural mechanism of allosteric modulation. We raised nanobodies, which are antibody fragments derived from camelids and have the potential to trap conformationally transient states, and used them as crystallization chaperones for ELIC. Functional characterization of ELIC nanobodies using electrophysiological techniques demonstrated that these nanobodies are active as channel modulators. We demonstrate that nanobodies can either inhibit or potentiate agonist‐evoked channel responses, suggesting that nanobodies can act as negative (NAMs) or positive allosteric modulators (PAMs), respectively. The X‐ray crystal structure of ELIC in complex with a nanobody reveals that a nanobody binds at an allosteric binding site and near to a binding site previously known to mediate potentiation of ELIC by the benzodiazepine flurazepam. Given the structural conservation of allosteric binding sites between ELIC and human receptors our study reveals common mechanisms for allosteric modulation in this family of channels. Our expanded knowledge of the structural determinants of allosteric modulation opens opportunities for the development of new therapeutics targeting pLGICs in ion channel‐related disorders.This abstract is from the Experimental Biology 2018 Meeting. There is no full text article associated with this abstract published in The FASEB Journal.