Many clinically important drugs target ligand-gated ion channels; however, the mechanisms by which these drugs modulate channel function remain elusive. Benzodiazepines (BZDs), anesthetics, and barbiturates exert their CNS actions by binding to GABA A receptors and modulating their function. The structural mechanisms by which BZD binding is transduced to potentiation or inhibition of GABAinduced current (I GABA ) are essentially unknown. Here, we explored the role of the ␥ 2 Q182-R197 region (Loop F/9) in the modulation of I GABA by positive (flurazepam, zolpidem) and negative [3-carbomethoxy-4-ethyl-6,7-dimethoxy--carboline (DMCM)] BZD ligands. Each residue was individually mutated to cysteine, coexpressed with wild-type ␣ 1 and  2 subunits in Xenopus oocytes, and analyzed using two-electrode voltage clamp. Individual mutations differentially affected BZD modulation of I GABA . Mutations affecting positive modulation span the length of this region, whereas ␥ 2 W183C at the beginning of Loop F was the only mutation that adversely affected DMCM inhibition. Radioligand binding experiments demonstrate that mutations in this region do not alter BZD binding, indicating that the observed changes in modulation result from changes in BZD efficacy. Flurazepam and zolpidem significantly slowed covalent modification of ␥ 2 R197C, whereas DMCM, GABA, and the allosteric modulator pentobarbital had no effects, demonstrating that ␥ 2 Loop F is a specific transducer of positive BZD modulator binding. Therefore, ␥ 2 Loop F plays a key role in defining BZD efficacy and is part of the allosteric pathway allowing positive BZD modulator-induced structural changes at the BZD binding site to propagate through the protein to the channel domain.