ZAG is a multifunctional glycoprotein with a class I MHC-like protein fold and an α1-α2 lipid-binding groove. The intrinsic ZAG ligand is unknown. Our previous studies showed that ZAG binds the dansylated C11 fatty acid, DAUDA, differently to the boron dipyrromethane C16 fatty acid, C16 -BODIPY. Here, the molecular basis for this difference was elucidated. Multi-wavelength analytical ultracentrifugation confirmed that DAUDA and C16 -BODIPY individually bind to ZAG and compete for the same binding site. Molecular docking of lipid-binding in the structurally related CD1-proteins predicted nine conserved ligand contact residues in ZAG. Twelve mutants were accordingly created by alanine scanning site directed mutagenesis for characterisation. Mutation of Y12 caused ZAG to misfold. Mutation of K147, R157 and A158 abrogated C16 -BODIPY but not DAUDA binding. L69 and T169 increased the fluorescence emission intensity of C16 -BODIPY but not of DAUDA compared to wild-type ZAG and showed that C16 -BODIPY binds close to T169 and L69. Distance measurements of the crystal structure revealed K147 forms a salt bridge with D83. A range of bioactive bulky lipids including phospholipids and sphingolipids displaced DAUDA from the ZAG binding site but unexpectedly did not displace C16 -BODIPY. We conclude that the ZAG α1-α2 groove contains separate but overlapping sites for DAUDA and C16 -BODIPY and is involved in binding to a bulkier and wider repertoire of lipids than previously reported. This work suggested that the in vivo activity of ZAG may be dictated by its lipid ligand. (262 words).