C1 domains are independently folded modules that are responsible for targeting their parent proteins to lipid membranes containing diacylglycerol (DAG), a ubiquitous second messenger. The DAG binding affinities of C1 domains determine the threshold concentration of DAG required for the propagation of signaling response and the selectivity of this response among DAG receptors in the cell. The structural information currently available for C1 domains offers little insight into the molecular basis of their differential DAG binding affinities. In this work, we characterized the C1B domain of protein kinase Cα (C1Bα) and its diagnostic mutant, Y123W, using solution NMR methods and molecular dynamics simulations. The mutation did not perturb the C1Bα structure or the sub-nanosecond dynamics of the protein backbone, but resulted in a > 100-fold increase in DAG binding affinity and a substantial change in microsecond timescale conformational dynamics, as quantified by NMR rotating-frame relaxation-dispersion methods. The differences in the conformational exchange behavior between wild type and Y123W C1Bα were localized to the hinge regions of ligand-binding loops. Molecular dynamics simulations provided insight into the identity of the exchanging conformers and revealed the significance of a particular residue (Gln128) in modulating the geometry of the ligand-binding site. Taken together with the results of binding studies, our findings suggest that the conformational dynamics and preferential partitioning of the tryptophan side chain into the water-lipid interface are important factors that modulate the DAG binding properties of the C1 domains.