Cys148 in the lactose permease of Escherichia coli has been replaced with hydrophobic (Ala, Val, Ile, Phe), hydrophilic (Ser, Thr), or charged (Asp, Lys) residues, and the properties of the replacement mutants have been analyzed. Although Cys148 is not essential for transport, the size and polarity of the side chain at this position modifies transport activity and substrate specificity. Thus, small hydrophobic side chains (Ala, Val) generally increase the apparent affinity of the permease for substrate, while hydrophilic side chains (Ser, Thr, Asp) decrease apparent affinity and bulky or positively charged side chains (Phe, Lys) virtually abolish activity. In addition, hydrophilic substitutions (Ser, Thr, Asp) alter the specificity of the permease toward monosaccharides relative to disaccharides. On the basis of these and other observations, it is concluded that Cys148 is located in a sugar binding site of lac permease and probably interacts hydrophobically with the galactosyl moiety. The postulate receives more direct support from site-directed fluorescence labeling studies presented in the following paper in this issue [Wu, J., and Kaback, H. R. (1994) Biochemistry (following paper in this issue)].