One of the major problems in computational drug design is incorporation of the intrinsic flexibility of protein binding sites. This is particularly crucial in ligand binding events, when induced fit can lead to protein structure rearrangements. As a consequence of the huge conformational space available to protein structures, receptor flexibility is rarely considered in ligand design procedures. In this work, we present an algorithm for integrating protein binding-site flexibility into de novo ligand design and docking processes. The approach allows dynamic rearrangement of amino acid side chains during the docking and design simulations. The impact of protein conformational flexibility is investigated in the docking of highly active inhibitors in the binding sites of acetylcholinesterase and human collagenase (matrix metalloproteinase-1) and in the design of ligands in the S1' pocket of MMP-1. The results of corresponding simulations for both rigid and flexible binding sites are compared in order to gauge the influence of receptor flexibility in drug discovery protocols.