Ligand functional groups can modulate the contributions of one another to the ligand-protein binding thermodynamics, producing either positive or negative cooperativity. Data presented for four thermolysin phosphonamidate inhibitors demonstrate that the differential binding free energy and enthalpy caused by replacement of a H with a Me group, which binds in the well-hydrated S2' pocket, are more favorable in presence of a ligand carboxylate. The differential entropy is however less favorable. Dissection of these differential thermodynamic parameters, X-ray crystallography, and density-functional theory calculations suggest that these cooperativities are caused by variations in the thermodynamics of the complex hydration shell changes accompanying the H→Me replacement. Specifically, the COO(-) reduces both the enthalpic penalty and the entropic advantage of displacing water molecules from the S2' pocket and causes a subsequent acquisition of a more enthalpically, less entropically, favorable water network. This study contributes to understanding the important role water plays in ligand-protein binding.