We use a new algorithm (combinatorial entropy optimization [CEO]) to identify specificity residues and functional subfamilies in sets of proteins related by evolution. Specificity residues are conserved within a subfamily but differ between subfamilies, and they typically encode functional diversity. We obtain good agreement between predicted specificity residues and experimentally known functional residues in protein interfaces. Such predicted functional determinants are useful for interpreting the functional consequences of mutations in natural evolution and disease.