The binding and action of glucagon at its receptor in hepatic plasma membranes have been compared, as a function of pH, with that of glucagon containing iodotyrosyl residues. Iodinated glucagon, at pH 7.0 and below, binds to the receptor and activates adenylate cyclase with an affinity about threefold higher than that of native glucagon. At pH 8.5, the affinity of the receptor for native glucagon is the same as that seen at pH 7.0. However, iodinated glucagon binds with a lowered affinity with increasing pH. The decreased affinity of the iodinated hormone correlates with ionization of the iodotyrosyl phenoxy groups, which has a pKa of 8.2. It is suggested that the decreased affinity is actually due to the inability of the ionized iodoglucagon to bind to the receptor. The relative potency of native and iodoglucagon will depend, therefore, on the concentrations of ionized and un-ionized species of iodoglucagon, which in turn depend on the pH of the medium. We conclude that incorporation of iodine atoms in the tyrosyl residues of glucagon has two major effects: (i) the iodine atom increases hydrophobic interaction of the hormone with the receptor and (ii) ionization of the phenoxy groups results in the loss of biological activity possibly as the result of loss of hydrogen bonding capability. Thus, the tyrosyl residues in glucagon are critically involved in the function of the hormone.