<p>Potassium (K⁺) is an essential cation for life. Extracellular K⁺ is mainly sensed by membrane proteins that use K⁺ as their substrates. Yet, no membrane protein that is gated by extracellular K⁺ as a ligand and exhibits a distinct signal has been discovered in animals. Here, we report that a Cys-loop receptor, CG12344/DmAlka, expressed in the <i>Drosophila</i> nervous system, is selectively modulated by a physiological concentration of extracellular K⁺. Structural prediction, electrophysiology and phylogenetic analysis of DmAlka revealed the extracellular K⁺ binding site that mimics the hydrated chemical environment for K⁺, as observed in K⁺ channel pore. Furthermore, we found that K⁺ binding induces a previously unrecognized mode-switching mechanism, altering properties ranging from ligand sensitivity to ion selectivity. Notably, a human glycine receptor variant also exhibited similar mechanisms. Our study reveals a regulatory mechanism of Cys-loop receptors that directly links the extracellular K⁺ signaling to Cl⁻ conductance in animals.</p>