The C1 domains of conventional and novel protein kinase C (PKC) isoforms bind diacylglycerol and phorbol esters with high affinity. Highly conserved hydrophobic residues at or near the rim of the binding cleft in the second cysteine-rich domain of PKC-delta (PKC-deltaC1b) were mutated to probe their roles in ligand recognition and lipid interaction. [(3)H]Phorbol 12,13-dibutyrate (PDBu) binding was carried out both in the presence and absence of phospholipids to determine the contribution of lipid association to the ligand affinity. Lipid dependence was determined as a function of lipid concentration and composition. The binding properties of a high affinity branched diacylglycerol with lipophilicity similar to PDBu were compared with those of PDBu to identify residues important for ligand selectivity. As expected, Leu-20 and Leu-24 strongly influenced binding. Substitution of either by aspartic acid abolished binding in either the presence or absence of phosphatidylserine. Mutation of Leu-20 to Arg or of Leu-24 to Lys caused a dramatic (340- and 250-fold, respectively) reduction in PDBu binding in the presence of lipid but only a modest reduction in the weaker binding of PDBu observed in the absence of lipid, suggesting that the main effect was on C1 domain -phospholipid interactions. Mutation of Leu-20 to Lys or of Trp-22 to Lys had modest (3-fold) effects and mutation of Phe-13 to Tyr or Lys was without effect. Binding of the branched diacylglycerol was less dependent on phospholipid and was more sensitive to mutation of Trp-22 to Tyr or Lys, especially in the presence of phospholipid, than was PDBu. In terms of specific PKC isoforms, our results suggest that the presence of Arg-20 in PKC-zeta may contribute to its lack of phorbol ester binding activity. More generally, the results emphasize the interplay between the C1 domain, ligand, and phospholipid in the ternary binding complex.