We recently identified LY2033298 as a novel allosteric potentiator of acetylcholine (ACh) at the M(4) muscarinic acetylcholine receptor (mAChR). This study characterized the molecular mode of action of this modulator in both recombinant and native systems. Radioligand-binding studies revealed that LY2033298 displayed a preference for the active state of the M(4) mAChR, manifested as a potentiation in the binding affinity of ACh (but not antagonists) and an increase in the proportion of high-affinity agonist-receptor complexes. This property accounted for the robust allosteric agonism displayed by the modulator in recombinant cells in assays of [(35)S]GTPgammaS binding, extracellular regulated kinase 1/2 phosphorylation, glycogen synthase kinase 3beta phosphorylation, and receptor internalization. We also found that the extent of modulation by LY2033298 differed depending on the signaling pathway, indicating that LY2033298 engenders functional selectivity in the actions of ACh. This property was retained in NG108-15 cells, which natively express rodent M(4) mAChRs. Functional interaction studies between LY2033298 and various orthosteric and allosteric ligands revealed that its site of action overlaps with the allosteric site used by prototypical mAChR modulators. Importantly, LY2033298 reduced [(3)H]ACh release from rat striatal slices, indicating retention of its ability to allosterically potentiate endogenous ACh in situ. Moreover, its ability to potentiate oxotremorine-mediated inhibition of condition avoidance responding in rodents was significantly attenuated in M(4) mAChR knockout mice, validating the M(4) mAChR as a key target of action of this novel allosteric ligand.