Interaction of basic fibroblast growth factor (FGF-2) with heparin or heparan sulfate proteoglycans (HSPGs) is required for receptor activation and initiation of biological responses. To gain insight into the mechanism of activation of the FGF receptor by FGF-2 and heparin, we have used NMR, dynamic light scattering, and HSPG-deficient cells and cell-free systems. The first 28 N-terminal residues in FGF-2 were found to be highly mobile and flexible, consistent with the disorder found in both the NMR and X-ray structures. The structure of an FGF-2-heparin-decasaccharide complex that binds to and activates the FGF receptor was compared to a heparin- tetrasaccharide-induced complex that does not promote an interaction with the receptor. The major change observed upon the addition of the tetrasaccharide to FGF-2 was an increase in the correlation time consistent with the formation of an FGF-2 dimer. The NMR line widths of FGF-2 in the presence of the decasaccharide are severely broadened relative to the tetrasaccharide, consistent with dynamic light scattering results which indicate FGF-2 is a tetramer. The interaction of these heparin species with FGF-2 does not induce a significant conformational change in the overall structure of FGF-2, but small chemical shift changes are observed in both heparin and receptor binding sites. A trans-oriented symmetric dimer of FGF-2 is formed in the presence of the tetrasaccharide whereas two cis-oriented dimers in a symmetric tetramer are formed in the presence of the decasaccharide. This suggests that the cis-oriented FGF-2 dimer is the minimal biologically active structural unit of FGF-2. These data allow us to propose a novel mechanism to explain the functional interaction of FGF-2 with heparin and its transmembrane receptor.