Aldose reductase (ALR2) shows a strong specificity for its nucleotide coenzyme, binding NADPH much more tightly than NADH (KD of < 1 microM versus 1.2 mM respectively). Interactions responsible for this specificity include salt linkages between the highly conserved residues Lys-262 and Arg-268, and the 2'-phosphate of NADP(H). Previous studies show that mutation of Lys-262 results in an increase in the Km for both coenzyme and aldehyde substrate, as well as in the kcat of reduction. The present study shows that mutation of Arg-268 to methionine results in a 36-fold increase in Km and 205-fold increase in KD for NADPH, but little change in Km for DL-glyceraldehyde or in the kcat of the reaction. Calculation of free energy changes show that the 2'-phosphate of NADPH contributes 4.7 kcal/mol of binding energy to its interaction with WT-hALR2. For the R268M mutant, the interaction of NADPH was destabilized by 3.2 kcal/mol, indicating that the mutation decreases the binding energy of NADPH by 65%. The effect of removing Arg-268 in the absence of the 2'-phosphate of NADPH was virtually identical to the destabilization of the activation energy in the absence of the 2'-phosphate itself (1.9 versus 2.0 kcal/mol, respectively). Therefore, while the 2'-phosphate of the coenzyme plays a role in both coenzyme binding and transition state stabilization during catalysis, the role of Arg-268 lies strictly in tighter coenzyme binding.