The clathrin-associated AP-2 adaptor protein is a major polyphosphoinositide-binding protein in mammalian cells. A high affinity binding site has previously been localized to the NH₂-terminal region of the AP-2 α subunit (. J. Biol. Chem. 271:20922–20929). Here we used deletion and site- directed mutagenesis to determine that α residues 21–80 comprise a discrete folding and inositide-binding domain. Further, positively charged residues located within this region are involved in binding, with a lysine triad at positions 55–57 particularly critical. Mutant peptides and protein in which these residues were changed to glutamine retained wild-type structural and functional characteristics by several criteria including circular dichroism spectra, resistance to limited proteolysis, and clathrin binding activity. When expressed in intact cells, mutated α subunit showed defective localization to clathrin-coated pits; at high expression levels, the appearance of endogenous AP-2 in coated pits was also blocked consistent with a dominant-negative phenotype. These results, together with recent work indicating that phosphoinositides are also critical to ligand-dependent recruitment of arrestin-receptor complexes to coated pits (. EMBO (Eur. Mol. Biol. Organ.) J. 18:871–881), suggest that phosphoinositides play a critical and general role in adaptor incorporation into plasma membrane clathrin-coated pits.