Spatial layouts can significantly influence the formation and outcomes of social relationships. Physical proximity is thus essential to understanding the elemental building blocks of social networks, dyads. Situating relationships in space is instrumental to formulating better models of collaboration and information sharing in organizations and more robust theories of networks and their effects. We propose, develop, and test a concept, the functional zone, which effectively captures Festinger et al.’s classic description of “functional distance” as it pertains to social interactions. We operationalize functional zone with measures of path and areal zone overlap. At two biomedical research buildings with different layouts (compact versus linear), regression analyses of collaboration rates show that increasing path overlap increases collaboration. More traditional distance measures influence collaboration only in the more linear building. The functional zone concept improves our ability to understand relationships and their attendant organizational outcomes.