FtsY, the Escherichia coli homologue of the eukaryotic signal recognition particle (SRP) receptor alpha-subunit, is located in both the cytoplasm and inner membrane. It has been proposed that FtsY has a direct targeting function, but the mechanism of its association with the membrane is unclear. FtsY is composed of two hydrophilic domains: a highly charged N-terminal domain (the A-domain) and a C-terminal GTP-binding domain (the NG-domain). FtsY does not contain any hydrophobic sequence that might explain its affinity for the inner membrane, and a membrane-anchoring protein has not been detected. In this study, we provide evidence that FtsY interacts directly with E.coli phospholipids, with a preference for anionic phospholipids. The interaction involves at least two lipid-binding sites, one of which is present in the NG-domain. Lipid association induced a conformational change in FtsY and greatly enhanced its GTPase activity. We propose that lipid binding of FtsY is important for the regulation of SRP-mediated protein targeting.