Pentameric ligand-gated ion channels (pLGICs) are membrane-embedded receptors found extensively in pre- and post-synaptic membranes throughout the nervous system where they play an important role in neurotransmission. The function of the prototypic pLGIC, the nicotinic acetylcholine receptor (nAChR) is highly sensitive to changes in its lipid environment, while other pLGICs display varying lipid sensitivities. This thesis presents a multidisciplinary investigation into the features of the transmembrane domain (TMD) that determine the unique functional and physical traits of different pLGICs. Using two prokaryotic homologues of the nAChR, ELIC and GLIC, as models, I focus on the outermost, lipid-exposed α-helix, M4, which, despite being distant from the primary allosteric pathway coupling agonist binding to channel gating, exercises significant control over channel function. Here, I present evidence that M4 acts as a lipid sensor, detecting changes in the surrounding lipids and transmitting these changes to the channel pore via contacts with the adjacent TMD α-helices, M1 and M3, and/or with structures in the extracellular domain. Using ELIC and GLIC chimeras, I first show that the TMD is the main driver of pLGIC thermal stability. I then demonstrate that the M4 α-helices in each channel play different roles in channel maturation and function, which suggests a divergent evolutionary path. Following this, I show that the M4 C-terminus is essential to both maturation and function in GLIC, while in ELIC its role is less defined, again showcasing possible evolutionary differences. Building on these findings, I examined the role of aromatic residues at the M4 – M1/M3 interface, and found that they predictably determine the interactions between M4 and M1/M3. Notably, the addition of aromatic residues to enhance M4-M1/M3 interactions in ELIC promotes channel function, while the elimination of aromatic residues at the M4-M1/M3 interface in GLIC is detrimental to channel function. Furthermore, I show that these same aromatics alter the strength of pLGIC lipid sensing and the sensitivity to certain disease-causing mutations, both indicating that aromatic residues are key players in channel function, stability and modulation. Finally, I and my collaborators identified and characterized a novel desensitization-linked lipid binding site in ELIC. Extensive mutagenesis studies coupled with biophysical measurements allowed us to develop a model describing how lipid binding influences the rates of ELIC desensitization to shape the agonist-induced response.