After activation by an agonist, G-protein-coupled receptors (GPCRs) recruit beta-arrestin, which desensitizes heterotrimeric G-protein signalling and promotes receptor endocytosis(1). Additionally, beta-arrestin directly regulates many cell signalling pathways that can induce cellular responses distinct from that of G proteins(2). In contrast to G proteins, for which there are many high-resolution structures in complex with GPCRs, the molecular mechanisms underlying the interaction of beta-arrestin with GPCRs are much less understood. Here we present a cryo-electron microscopy structure of beta-arrestin 1 (beta arr1) in complex with M2 muscarinic receptor (M2R) reconstituted in lipid nanodiscs. The M2R-beta arr1 complex displays a multimodal network of flexible interactions, including binding of the N domain of beta arr1 to phosphorylated receptor residues and insertion of the finger loop of beta arr1 into the M2R seven-transmembrane bundle, which adopts a conformation similar to that in the M2R-heterotrimeric G(o) protein complex(3). Moreover, the cryo-electron microscopy map reveals that the C-edge of beta arr1 engages the lipid bilayer. Through atomistic simulations and biophysical, biochemical and cellular assays, we show that the C-edge is critical for stable complex formation, beta arr1 recruitment, receptor internalization, and desensitization of G-protein activation. Taken together, these data suggest that the cooperative interactions of beta-arrestin with both the receptor and the phospholipid bilayer contribute to its functional versatility.