Human small heat shock protein 27 (Hsp27) undergoes concentration-dependent equilibrium dissociation from an ensemble of large oligomers to a dimer. This phenomenon plays a critical role in Hsp27 chaperone activity in vitro enabling high affinity binding to destabilized proteins. In vivo dissociation, which is regulated by phosphorylation, controls Hsp27 role in signaling pathways. In this study, we explore the sequence determinants of Hsp27 dissociation and define the structural basis underlying the increased affinity of Hsp27 dimers to client proteins. A systematic cysteine mutagenesis is carried out to identify residues in the N-terminal domain important for the equilibrium between Hsp27 oligomers and dimers. In addition, spin-labels were attached to the cysteine mutants to enable electron paramagnetic resonance (EPR) analysis of residue environment and solvent accessibility in the context of the large oligomers, upon dissociation to the dimer, and following complex formation with the model substrate T4 Lysozyme (T4L). The mutagenic analysis identifies residues that modulate the equilibrium dissociation in favor of the dimer. EPR analysis reveals that oligomer dissociation disrupts subunit contacts leading to the exposure of Hsp27 N-terminal domain to the aqueous solvent. Moreover, regions of this domain are highly dynamic with no evidence of a packed core. Interaction between T4L and sequences in this domain is inferred from transition of spin-labels to a buried environment in the substrate/Hsp27 complex. Together, the data provide the first structural analysis of sHSP dissociation and support a model of chaperone activity wherein unstructured and highly flexible regions in the N-terminal domain are critical for substrate binding.