The endoplasmic reticulum HSP70 chaperone BiP/Kar2p is both the sensor for the unfolded protein response (UPR) in the yeast Saccharomyces cerevisiae and a target of transcriptional up-regulation by this signaling pathway. In this study, the molecular form of Kar2p that interacts with the Ire1p transmembrane receptor kinase to inhibit UPR signaling was shown to be the substrate-free, ATP-bound conformation. Oligosaccharide shielding experiments localized the binding site for Ire1p to the top of the back face of lobe IB of the Kar2p ATPase domain. The interaction between Kar2p and Ire1p is abolished by substitution of glutamic acid for glutamine 88, a residue on the surface of lobe IB that is likely to be shielded by ectopic oligosaccharide side-chains that also prevented the interaction between the two proteins. Glutamine 88 is conserved significantly throughout the HSP70 chaperone family and others have shown that the NMR resonances of the corresponding glutamine residue in Thermus thermophilus DnaK display chemical shift perturbations between the ATP-bound and ADP-bound states and in the presence of a substrate peptide. We conclude that glutamine 88 is part of or close to the Ire1p-binding site displayed on the ATP-bound conformation of Kar2p. Binding of an unfolded polypeptide to the substrate-binding domain of Kar2p could alter the positioning of glutamine 88 and other residues on lobe IB involved in binding Ire1p, releasing Ire1p for activation of UPR signaling.