Pentameric ligand-gated ion channels (pLGICs) belong to a class of ion channels involved in fast synaptic signaling in the central and peripheral nervous systems. Molecules acting as allosteric modulators target binding sites that are remote from the neurotransmitter binding site, but functionally affect coupling of ligand binding to channel opening. Here, we investigated an allosteric binding site in the ion channel vestibule, which has converged from a series of studies on prokaryote and eukaryote channel homologs. We discovered single domain antibodies, called nanobodies, which are functionally active as allosteric modulators, and solved co-crystal structures of the prokaryote channel ELIC bound either to a positive (PAM) or a negative (NAM) allosteric modulator. We extrapolate the functional importance of the vestibule binding site to eukaryote ion channels, suggesting a conserved mechanism of allosteric modulation. This work identifies key elements of allosteric binding sites and extends drug design possibilities in pLGICs using nanobodies.