Human α7 nicotinic acetylcholine receptor (α7-nAChR) is a ligand-gated ion channel involved in many essential processes and considered important pharmacological target. Its function is regulated by GPI-anchored neuromodulator Lynx1. Despite huge progress in structural studies of α7-nAChR, there is still a lack of experimental data on its interaction with Lynx1. Here, we present an iterative modeling framework that combines exhaustive ensemble protein-protein docking with a quantitative two-sided mutagenesis-guided scoring. Water-soluble domain of human Lynx1 (ws-Lynx1) interacted with the resting state of human α7-nAChR and inhibited ACh-evoked currents through the receptor expressed in Xenopus oocytes with IC ~ 11 μM without affecting channel desensitization. Ws-Lynx1 and α7-nAChR residues selected from the initial docking model were replaced by alanine, and effects of their substitutions were evaluated and classified as Loss-of-Function, Gain-of-Function, or Neutral. Loss-of-Function substitutions were represented by ws-Lynx1[R37A] (IC ~ 60 μM) and α7-nAChR[K182A] (full activity loss). Based on mutagenesis data combined with a GPI-anchoring geometry restriction the initial number of docking solutions was reduced from 338,000 to seven. The top-scoring conformation was assembled into a pentameric (GPI-anchored Lynx1)-(N-glycosylated α7-nAChR) complex and refined by 1.5 μs of explicit-membrane unrestrained molecular dynamics. The refined model revealed several new features of the Lynx1-α7-nAChR interaction and suggests a mechanism underlying allosteric modulation. By this model, Lynx1 loop II and GPI-anchor form stable contacts with the ECD-TMD coupling region, preventing the receptor activation. Structural insights obtained here provide rational basis for the future design of new α7-nAChR modulators.