Pentameric ligand-gated ion channels (pLGICs) are crucial mediators of electrochemical signal transduction in various organisms from bacteria to humans. Lipids play an important role in regulating pLGIC function, yet the structural bases for specific pLGIC-lipid interactions remain poorly understood. The bacterial channel ELIC recapitulates several properties of eukaryotic pLGICs, including activation by the neurotransmitter GABA and binding and modulation by lipids, offering a simplified model system for structure-function relationship studies. In this study, functional effects of noncanonical amino acid substitution of a potential lipid-interacting residue (W206) at the top of the M1-helix, combined with detergent interactions observed in recent X-ray structures, are consistent with this region being the location of a lipid-binding site on the outward face of the ELIC transmembrane domain. Coarse grained and atomistic molecular dynamics simulations revealed preferential binding of lipids containing a positive charge, particularly involving interactions with residue W206, consistent with cation-pi binding. Polar contacts from other regions of the protein, particularly M3 residue Q264, further support lipid binding via headgroup ester linkages. Aromatic residues were identified at analogous sites in a handful of eukaryotic family members, including the human GABA(A) receptor epsilon subunit, suggesting conservation of relevant interactions in other evolutionary branches. Further mutagenesis experiments indicated that mutations at this site in epsilon-containing GABA(A) receptors can change the apparent affinity of the agonist response to GAB(A), suggesting a potential role of this site in channel gating. In conclusion, this work details type-specific lipid interactions, which adds to our growing understanding of how lipids modulate pLGICs.