The thermodynamic consequences of systematic modifications in a ligand side chain that binds in a shallow hydrophobic pocket, in the presence and absence of a neighboring ligand carboxylate group, were evaluated using isothermal titration calorimetry (ITC). Data revealed that the carboxylate significantly changes the relative thermodynamic signatures of these modifications, likely via altering the H-bonding/organization status of the hydration waters both in the unbound and the bound states. This carboxylate group was found to be proenthalpic, antientropic in some cases, and antienthalpic, proentropic in others. A remarkable enthalpy-entropy compensation relationship was also observed, reflecting the fact that the hydrophobic effect is governed by the thermodynamic status of the associated aqueous environment. This study could improve our understanding of the hydrophobic effect and may enhance our ability to design potent ligands that are capable of modulating biological processes.