The dissociation equilibrium constant for heparin binding to antithrombin III (ATIII) is a measure of the cofactor's binding to and activation of the proteinase inhibitor, and its salt dependence indicates that ionic and non-ionic interactions contribute approximately 40 and approximately 60% of the binding free energy, respectively. We now report that phenylalanines 121 and 122 (Phe-121 and Phe-122) together contribute 43% of the total binding free energy and 77% of the energy of non-ionic binding interactions. The large contribution of these hydrophobic residues to the binding energy is mediated not by direct interactions with heparin, but indirectly, through contacts between their phenyl rings and the non-polar stems of positively charged heparin binding residues, whose terminal amino and guanidinium groups are thereby organized to form extensive and specific ionic and non-ionic contacts with the pentasaccharide. Investigation of the kinetics of heparin binding demonstrated that Phe-122 is critical for promoting a normal rate of conformational change and stabilizing AT*H, the high affinity-activated binary complex. Kinetic and structural considerations suggest that Phe-122 and Lys-114 act cooperatively through non-ionic interactions to promote P-helix formation and ATIII binding to the pentasaccharide. In summary, although hydrophobic residues Phe-122 and Phe-121 make minimal contact with the pentasaccharide, they play a critical role in heparin binding and activation of antithrombin by coordinating the P-helix-mediated conformational change and organizing an extensive network of ionic and non-ionic interactions between positively charged heparin binding site residues and the cofactor.