Saccharomyces cerevisiae Hsp104, a hexameric member of the Hsp100/Clp subfamily of AAA+ ATPases with two nucleotide binding domains (NBD1 and 2), refolds aggregated proteins in conjunction with Hsp70 molecular chaperones. Hsp104 may act as a "molecular crowbar" to pry aggregates apart and/or may extract proteins from aggregates by unfolding and threading them through the axial channel of the Hsp104 hexamer. Targeting Tyr-662, located in a Gly-Tyr-Val-Gly motif that forms part of the axial channel loop in NBD2, we created conservative (Phe and Trp) and non-conservative (Ala and Lys) amino acid substitutions. Each of these Hsp104 derivatives was comparable to the wild type protein in their ability to hydrolyze ATP, assemble into hexamers, and associate with heat-shock-induced aggregates in living cells. However, only those with conservative substitutions complemented the thermotolerance defect of a Deltahsp104 yeast strain and promoted refolding of aggregated protein in vitro. Monitoring fluorescence from Trp-662 showed that titration of fully assembled molecules with either ATP or ADP progressively quenches fluorescence, suggesting that nucleotide binding determines the position of the loop within the axial channel. A Glu to Lys substitution at residue 645 in the NBD2 axial channel strongly alters the nucleotide-induced change in fluorescence of Trp-662 and specifically impairs in protein refolding. These data establish that the structural integrity of the axial channel through NBD2 is required for Hsp104 function and support the proposal that Hsp104 and ClpB use analogous unfolding/threading mechanisms to promote disaggregation and refolding that other Hsp100s use to promote protein degradation.