PEGylation is an attractive strategy to enhance the therapeutic efficacy of proteins with a short serum half-life. It can be used to extend the serum persistence and to reduce the immunogenicity of proteins. However, PEGylation can also lead to a decrease in the functional activity of the molecule to which it is applied. We constructed site-specifically PEGylated variants of anti-p185HER-2 antibody fragments in the format of a monovalent single-chain variable fragment and a divalent miniantibody and characterized the antigen binding properties in detail. Mass-transport limited BIAcore measurements and binding assays on HER-2-overexpressing cells demonstrated that the immunoreactivity of the antibody fragments is fully maintained after PEGylation. Nevertheless, we found that the attachment of a 20-kDa polyethylene glycol (PEG) moiety led to a reduction in apparent affinity of approximately 5-fold, although in both formats, the attachment site was most distal to the antigen binding regions. This decrease in affinity was observed in kinetic BIAcore measurements as well as in equilibrium binding assays on whole cells. By analysis of the binding kinetics, we could pinpoint this reduction exclusively to slower apparent on rates. Through both experimental and computational analyses, we demonstrate that these reduced on-rates do not arise from diffusion limitations. We show that a mathematical model accounting for both intramolecular and intermolecular blocking mechanisms of the PEG moiety can robustly explain the observed binding kinetics. The results suggest that PEGylation can significantly alter the binding-competent fraction of both ligands and receptors and may help to explain some of the beneficial effects of PEGylation in vivo.