Allosteric modulation of ligand-gated ion channels can play important roles in shaping synaptic transmission. The function of the 5-hydroxytryptamine (serotonin) type 3 (5-HT(3)) receptor, a member of the Cys-loop ligand-gated ion channel superfamily, is modulated by a variety of compounds such as alcohols, anesthetics and 5-hydroxyindole (5-HI). In this study, the molecular determinants of allosteric modulation by 5-HI were explored in N1E-115 neuroblastoma cells expressing the native 5-HT(3) receptor and HEK 293 cells transfected with the recombinant 5-HT(3A) receptor using molecular biology and whole-cell patch-clamp techniques. 5-HI potentiated 5-HT-activated currents in both N1E-115 cells and HEK 293 cells, and significantly decreased current desensitization and deactivation. Substitution of Leu293 (L293, L15') in the second transmembrane domain (TM2) with cysteine (L293C) or serine (L293S) abolished 5-HI modulation. Other mutations in the TM2 domain, such as D298A and T284F, failed to alter 5-HI modulation. The L293S mutation enhanced dopamine efficacy and converted 5-HI into a partial agonist at the mutant receptor. These data suggest that 5-HI stabilizes the 5-HT(3A) receptor in the open state by decreasing both desensitization and 5-HT unbinding/channel closing; and L293 is a common site for both channel gating and allosteric modulation by 5-HI. Our observations also indicate existence of a second 5-HI recognition site on the 5-HT(3A) receptor, which may overlap with the 5-HT binding site and is not involved in the positive modulation by 5-HI. These findings support the idea that there are two discrete sites for 5-HI allosteric modulation and direct activation in the 5-HT(3A) receptor.