FTY720 phosphate (FTY720P) is a high potency agonist for all the endothelial differentiation gene family sphingosine 1-phosphate (S1P) receptors except S1P receptor subtype 2 (S1P(2)). To map the distinguishing features of S1P(2) ligand recognition, we applied a computational modeling-guided mutagenesis strategy that was based on the high degree of sequence homology between S1P(1) and S1P(2). S1P(2) point mutants of the ligand-binding pocket were characterized. The head group-interacting residues Arg3.28, Glu3.29, and Lys7.34 were essential for activation. Mutation of residues Ala3.32, Leu3.36, Val5.41, Phe6.44, Trp6.48, Ser7.42, and Ser7.46, predicted to interact with the S1P hydrophobic tail, impaired activation by S1P. Replacing individual or multiple residues in the ligand-binding pocket of S1P(2) with S1P(1) sequence did not impart activation by FTY720P. Chimeric S1P(1)/S1P(2) receptors were generated and characterized for activation by S1P or FTY720P. The S1P(2) chimera with S1P(1) sequence from the N terminus to transmembrane domain 2 (TM2) was activated by FTY720P, and the S1P(2)(IC1-TM2)(S1P1) domain insertion chimera showed S1P(1)-like activation. Twelve residues in this domain, distributed in four motifs a-d, differ between S1P(1) and S1P(2). Insertion of (78)RPMYY in motif b alone or simultaneous swapping of five other residues in motifs c and d from S1P(1) into S1P(2) introduced FTY720P responsiveness. Molecular dynamics calculations indicate that FTY720P binding selectivity is a function of the entropic contribution to the binding free energy rather than enthalpic contributions and that preferred agonists retain substantial flexibility when bound. After exposure to FTY720P, the S1P(2)(IC1-TM2)(S1P1) receptor recycled to the plasma membrane, indicating that additional structural elements are required for the selective degradative trafficking of S1P(1).