Heat-shock proteins of 70 kDa (Hsp70s) are vital for all life and are notably important in protein folding. Hsp70s use ATP binding and hydrolysis at a nucleotide-binding domain (NBD) to control the binding and release of client polypeptides at a substrate-binding domain (SBD); however, the mechanistic basis for this allostery has been elusive. Here, we first characterize biochemical properties of selected domain-interface mutants in bacterial Hsp70 DnaK. We then develop a theoretical model for allosteric equilibria among Hsp70 conformational states to explain the observations: a restraining state, Hsp70-ATP, restricts ATP hydrolysis and binds peptides poorly, whereas a stimulating state, Hsp70-ATP, hydrolyzes ATP rapidly and has high intrinsic substrate affinity but rapid binding kinetics. We support this model for allosteric regulation with DnaK structures obtained in the postulated stimulating state S with biochemical tests of the S-state interface and with improved peptide-binding-site definition in an R-state structure.