Binding of cellular growth factors to their receptors constitutes a highly specific interaction and the basis for cell and tissue-type specific growth and differentiation. A unique feature of fibroblast growth factor (FGF) receptors is the multitude of structural variants and an unprecedented degree of cross-reactivity between receptors and their various ligands. To examine receptor-ligand specificity within these families of growth factors and receptors, we used genetic engineering to substitute discrete regions between Bek/FGFR2 and the closely related keratinocyte growth factor receptor (KGFR). We demonstrate that a confined, 50 amino acid, variable region within the third immunoglobulin-like domain of Bek and KGFR exclusively determines their ligand binding specificities. Replacing the variable region of Bek/FGFR2 with the corresponding sequence of KGFR resulted in a chimeric receptor which bound KGF and had lost the capacity to bind basic FGF. We present evidence that the two variable sequences are encoded by two distinct exons that map close together in the mouse genome and follow a constant exon, suggesting that the two receptors were derived from a common gene by mutually exclusive alternative mRNA splicing. These results identify the C-terminal half of the third immunoglobulin-like domain of FGF receptors as a major determinant for ligand binding and present a novel genetic mechanism for altering receptor-ligand specificity and generating receptor diversity.