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Neuronal nicotinic acetylcholine receptor (nAChR) signaling has been implicated in a variety of normal central nervous system (CNS) functions as well as an array of neuropathologies. Previous studies have demonstrated both neurotoxic and neuroprotective actions of peptides derived from apolipoprotein E (apoE). It has been discovered that apoE-derived peptides inhibit native and recombinant alpha7-containing nAChRs, indicating a direct interaction between apoE peptides and nAChRs. To probe the structure/function interaction between alpha7 nAChRs and the apoE peptide apoE141–148, experiments were conducted in Xenopus laevis oocytes expressing wild-type and mutated nAChRs. Mutation of Trp55 to alanine blocks apoE peptide-induced inhibition of acetylcholine (ACh)-mediated alpha7 nAChR responses. Additional mutations at Trp55 suggest that hydrophobic interactions between the receptor and apoE141–148 are essential for inhibition of alpha7 nAChR function. A mutated apoE peptide also demonstrated decreased inhibition at alpha7-W55A nAChRs as well as activity-dependent inhibition of both wild-type alpha7 nAChRs and alpha7-W55A receptors. Finally, a three-dimensional model of the alpha7 nAChR was developed based on the recently refined Torpedo marmorata nACh receptor. A structural model is proposed for the binding of apoE141–148 to the alpha7 nAChR where the peptide binds at the interface between two subunits, near the ACh binding site. Similar to the functional data, the computational docking suggests the importance of hydrophobic interactions between the alpha7 nAChR and the apoE peptide for inhibition of receptor function. The current data suggest a mode for apoE peptide binding that directly blocks alpha7 nAChR activity and consequently may disrupt nAChR signaling.