Detection of anti-drug antibodies (ADA) that have a neutralizing capacity is an important aspect of immunogenicity evaluation during development of biotherapeutics, but developing and validating neutralizing antibody (NAb) assays that show direct interference of a biologic function is a challenging and resource-intensive activity. In particular, the need for adequate drug and target tolerance often requires extensive pre-treatment steps that limit assay sensitivity compared with a typical bridging-format assay used to detect binding ADA. Such limitations may complicate data interpretation as a positive ADA followed by a negative NAb result could be due to the presence of non-neutralizing antibodies or could be a false-negative for NAbs due to methodology differences. To address such issues, we developed a novel assay for Nanobodies® and other antibody-derived therapeutics that solely detects ADA directed against the complementarity-determining regions (CDRs) involved in drug-target interactions. This was achieved by creating a "null variant" of the therapeutic drug, which has mutated CDRs rendering it non-functional for target binding but is otherwise identical to the drug compound. Non-CDR-binding antibodies are pre-complexed with the null variant of the Nanobody leaving only CDR-binding ADA with neutralizing potential (ANP) to be detected in this assay, which is called a NAb Epitope Characterization Assay (NECA). Method qualification results confirmed highly comparable assay characteristics (sensitivity, drug tolerance, selectivity and precision) of both the NECA and a validated ADA assay for the same Nanobody. A panel of purified neutralizing and non-neutralizing antibodies as well as non-clinical and clinical samples were used to further substantiate the fit-for-purpose and advantages of this novel assay format to detect ANP. In the clinical case study, a 20 to 40-fold difference in assay sensitivity existed between the validated ADA assay and NAb assay, which complicated data interpretation. Implementation of the NECA allowed unambiguous comparison of the levels of binding ADA and ANP in study samples which enabled us to delineate the true neutralizing capacity of the responses. Depending on the risk of the therapeutic, this method could be a valuable alternative for NAb testing by enabling earlier detection of ADA with neutralizing potential and ensuring adequate immunogenicity risk assessment.