To understand how two structurally analogous ligand-receptor systems, the nociceptin/opioid receptor-like 1 (ORL1) and dynorphin A/kappa-opioid receptor 1 (KOR1) systems, achieve selectivity, receptor chimeras were generated and analyzed. Replacing discrete domains located between the N-terminus and top of the third transmembrane helix of the KOR1 by the homologous domains of the ORL1 receptor yields hybrid receptors, which, in comparison with the parent KOR1, display up to 300-fold increased affinity but low sensitivity toward nociceptin, and unaltered (high) affinity and sensitivity toward dynorphin A. These substitutions contribute elements for binding of nociceptin but do not suppress determinants necessary for binding and potency of dynorphin A. More importantly, further replacement in these chimeras of the second extracellular loop with that of the ORL1 receptor fully restores responsiveness to nociceptin without impairing responsiveness to dynorphin A. A bifunctional hybrid receptor has thus been identified that binds and responds to both nociceptin and dynorphin A as efficiently as the ORL1 receptor does to nociceptin and the KOR1 to dynorphin A. Together, these results suggest that distinct peptide activation mechanisms operate in the two receptor systems. In particular, the second extracellular receptor loop appears to be an absolute requirement for activation of the ORL1 receptor by nociceptin, but not for activation of the KOR1 by dynorphin A.