The Sec7 domain of the guanine nucleotide exchange factor ARNO (ARNO-Sec7) is responsible for the exchange activity on the small GTP-binding protein ARF1. ARNO-Sec7 forms a stable complex with the nucleotide-free form of [Delta17]ARF1, a soluble truncated form of ARF1. The crystal structure of ARNO-Sec7 has been solved recently, and a site-directed mutagenesis approach identified a hydrophobic groove and an adjacent hydrophilic loop as the ARF1-binding site. We show that Glu156 in the hydrophilic loop of ARNO-Sec7 is involved in the destabilization of Mg2+ and GDP from ARF1. The conservative mutation E156D and the charge reversal mutation E156K reduce the exchange activity of ARNO-Sec7 by several orders of magnitude. Moreover, [E156K]ARNO-Sec7 forms a complex with the Mg2+-free form of [Delta17]ARF1-GDP without inducing the release of GDP. Other mutations in ARNO-Sec7 and in [Delta17]ARF1 suggest that prominent hydrophobic residues of the switch I region of ARF1 insert into the groove of the Sec7 domain, and that Lys73 of the switch II region of ARF1 forms an ion pair with Asp183 of ARNO-Sec7.