Central to the protein folding activity of Hsp70 chaperones is their ability to interact with protein substrates in an ATP-controlled manner, which relies on allosteric regulation between their nucleotide-binding (NBD) and substrate-binding domains (SBD). Here we dissect this mechanism by analysing mutant variants of the Escherichia coli Hsp70 DnaK blocked at distinct steps of allosteric communication. We show that the SBD inhibits ATPase activity by interacting with the NBD through a highly conserved hydrogen bond network, and define the signal transduction pathway that allows bound substrates to trigger ATP hydrolysis. We identify variants deficient in only one direction of allosteric control and demonstrate that ATP-induced substrate release is more important for chaperone activity than substrate-stimulated ATP hydrolysis. These findings provide evidence of an unexpected dichotomic allostery mechanism in Hsp70 chaperones and provide the basis for a comprehensive mechanical model of allostery in Hsp70s.