The family of hyperpolarization-activated, cyclic nucleotide-modulated (HCN) channels are crucial for a range of electrical signalling, including cardiac and neuronal pacemaker activity, setting resting membrane electrical properties and dendritic integration. These nonselective cation channels, underlying the I_f, I_h and I_q currents of heart and nerve cells, are activated by membrane hyperpolarization and modulated by the binding of cyclic nucleotides such as cAMP and cGMP. The cAMP-mediated enhancement of channel activity is largely responsible for the increase in heart rate caused by β-adrenergic agonists. Here we have investigated the mechanism underlying this modulation by studying a carboxy-terminal fragment of HCN2 containing the cyclic nucleotide-binding domain (CNBD) and the C-linker region that connects the CNBD to the pore. X-ray crystallographic structures of this C-terminal fragment bound to cAMP or cGMP, together with equilibrium sedimentation analysis, identify a tetramerization domain and the mechanism for cyclic nucleotide specificity, and suggest a model for ligand-dependent channel modulation. On the basis of amino acid sequence similarity to HCN channels, the cyclic nucleotide-gated, and eag- and KAT1-related families of channels are probably related to HCN channels in structure and mechanism.