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HIV-1 entry into host cells is mediated by the sequential binding of the envelope glycoprotein gp120 to CD4 and a chemokine receptor. Antibodies binding to epitopes overlapping the CD4-binding site on gp120 are potent inhibitors of HIV entry, such as the llama heavy chain antibody fragment V(HH) D7, which has cross-clade neutralizing properties and competes with CD4 and mAb b12 for high affinity binding to gp120. We report the crystal structure of the D7 V(HH) at 1.5 A resolution, which reveals the molecular details of the complementarity determining regions (CDR) and substantial flexibility of CDR3 that could facilitate an induced fit interaction with gp120. Structural comparison of CDRs from other CD4 binding site antibodies suggests diverse modes of interaction. Mutational analysis identified CDR3 as a key component of gp120 interaction as determined by surface plasmon resonance. A decrease in affinity is directly coupled to the neutralization efficiency since mutations that decrease gp120 interaction increase the IC50 required for HIV-1 IIIB neutralization. Thus the structural study identifies the long CDR3 of D7 as the key determinant of interaction and HIV-1 neutralization. Furthermore, our data confirm that the structural plasticity of gp120 can accommodate multiple modes of antibody binding within the CD4 binding site.