Gamma-amino butyric acid (GABA) is an abundant neurotransmitter in the CNS. GABAergic interneurons orchestrate pyramidal neurons in the cerebral cortex, and thus control learning and memory. Ionotropic receptors for GABA (GABAAR) are heteropentameric complexes of α, β and γ integral membrane-protein subunits forming Cl− -channels operated by GABA, which are vital for brain function and are important drug targets. However, knowledge on how GABAAR bind GABA is controversial. Structural biology versus functional modelling combined with site-directed mutagenesis suggest markedly different roles for loop F of the extracellular domain of the α-subunit when complexed with GABA. Here, we report that contrary to the results of structural studies, loop F of the α-subunit controls the potency of GABA on GABAAR. We examined the effect of replacing a short, variable segment of loop F of the GABAA α5-subunit with the corresponding segment of the α2-subunit (GABAA5_LF2) and vice versa (GABAA2-LF5). When compared with their respective wild-type counterparts, GABAA5_LF2 receptors displayed enhanced sensitivity towards GABA, whilst in GABAA2-LF5 sensitivity was diminished. Mice homozygous for the genetic knock-in of the GABAA5_LF2 subunit showed a marked deficit in long- but not short-term object recognition memory. Working memory in place learning, spontaneous alternation and the rewarded T-maze were all normal. The deficit in long-term recognition memory was reversed by an α5-GABAA negative allosteric modulator compound. The data show that loop F governs GABA potency in a receptor isoform-specific manner in vitro. Moreover, this mechanism of ligand recognition appears to be operative in vivo and impacts cognitive performance.