Native beta-lactoglobulin (Blg) binds 1 mole of palmitic acid per mole of protein with a dissociation constant of 0.6 mu M for the primary fatty acid binding site. Chemical modification of Cys 121, which lies at the external putative hydrophobic binding site of Blg, does not affect retinol or 4,4'-bis 1-(phenylamino)-8-naphthalenesulfonate (bis-ANS) binding to the protein, indicating that the incorporated appendages do not perturb the internal hydrophobic site within the beta-barrel of Blg (i.e., the retinoid site is unaffected). On the other hand, methylation of Cys 121, reduces the affinity of Big for palmitic acid by 10-fold as monitored by intrinsic fluorescence. Modification of the Cys 121 with methyl-methanethiosulfonate or a thiol-specific spin label appears to either further weaken or totally eliminate fatty acid binding, respectively, due to steric hindrance. Furthermore, this binding pattern has been independently verified using a spin labeled fatty acid analog and monitoring ESR as well as by bis-ANS fluorescence when bound to the protein. These results suggest that fatty acids bind at the "external site" of beta-lactoglobulin, between the sole alpha-helix and the beta-barrel. In addition, structural stability studies of native and chemically modified Blg appear to confirm this observation as well.