The last decade has witnessed a rapid development of nano- and microparticle-based optical ion sensors, including ion-selective optodes (ISOs). While the application of nano-ISOs has shown promising performance for sensing inorganic ions, polyion sensing using nanoscale ISOs has encountered significant interference in complex samples such as blood plasma. Recently, we have reported on a new polyion sensing principle that operates through a novel mechanism to overcome this challenge. The new sensing mechanism showed improved characteristics not observed with conventional ion-exchange type sensors, but the precise mechanism of operation remained thus far unclear. This paper aims to clarify how protamine, the arginine-rich target polycation, behaves during optical signal transduction to give dramatically improved selectivity. Based on thermodynamic data, sensor performance and ζ-potential analysis, two discrete phases of protamine extraction are identified. Initially, protamine extracts into the bulk nanosensor phase, a process that is concurrent with the optical signal change. This is then followed by protamine accumulation onto the nanosensor surface, which starts only upon saturation of the optical signal change. The data indicate that the improved selectivity is due to the inability of small ions to form a sufficiently strong interaction with an active sensing ingredient, DNNS^- . Any exchange of one inorganic cation for another therefore remains optically silent, suppressing matrix effects. Moreover, the recognition of protamine is shown to be an exhaustive extraction process, making the response independent of the nature and concentration of the initial small cation in the nanosensor phase.