Most of our understanding of G protein-coupled receptor (GPCR) activation has been focused on the direct interaction between diffusible ligands and their seven-transmembrane domains. However, a number of these receptors depend on their extracellular N-terminal domain for ligand recognition and activation. To dissect the molecular interactions underlying both modes of activation at a single receptor, we used the unique properties of the melanocortin-4 receptor (MC4R), a GPCR that shows constitutive activity maintained by its N-terminal domain and is physiologically activated by the peptide α-melanocyte stimulating hormone (αMSH). We find that activation by the N-terminal domain and αMSH relies on different key residues in the transmembrane region. We also demonstrate that agouti-related protein, a physiological antagonist of MC4R, acts as an inverse agonist by inhibiting N terminus-mediated activation, leading to the speculation that a number of constitutively active orphan GPCRs could have physiological inverse agonists as sole regulators.