The extracellular loops of G protein-coupled receptors (GPCRs) frequently contain binding sites for peptide ligands. However, the mechanism of receptor activation following ligand binding and the influence of the extracellular loops in other aspects of receptor function are poorly understood. Here we report a structure-function analysis of the first and third extracellular loops of the human C5a receptor, a GPCR that binds a 74-amino acid peptide ligand. Amino acid substitutions were randomly incorporated into each loop, and functional receptors were identified in yeast. The first extracellular loop contains a large number of positions that cannot tolerate amino acid substitutions, especially residues within the WXFG motif found in many rhodopsin-like GPCRs, yet disruption of these residues does not alter C5a binding affinity. These results demonstrate an unanticipated role for the first extracellular loop, and the WXFG motif in particular, in ligand-mediated activation of the C5a receptor. This motif likely serves a similar role in other GPCRs. The third extracellular loop, in contrast, contains far fewer preserved residues and appears to play a less essential role in receptor activation.