We establish that routine B3LYP and MP2 methods give qualitatively wrong conformations for flexible organic systems containing pi systems and that recently developed methods can overcome the known inadequacies of these methods. This is illustrated for a molecule (a conformer of the Tyr-Gly dipeptide) for which B3LYP/6-31+G(d) and MP2/6-31+G(d) geometry optimizations yield strikingly different structures [Mol. Phys. 2006, 104, 559-570]: MP2 predicts a folded "closed-book" conformer with the glycine residue located above the tyrosine ring, whereas B3LYP predicts a more open conformation. By employing different levels of theory, including the local electron correlation methods LMP2 (local MP2) and LCCSD(T0) (local coupled cluster with single, double, and noniterative local triple excitations) and large basis sets (aug-cc-pVnZ, n = D, T, Q), it is shown that the folded MP2 minimum is an artifact caused by large intramolecular BSSE (basis set superposition error) effects in the MP2/6-31+G(d) calculations. The B3LYP functional gives the correct minimum, but the potential energy apparently rises too steeply when the glycine and tyrosine residues approach each other, presumably due to missing dispersion effects in the B3LYP calculations. The PWB6K and M052X functionals, designed to give good results for weak interactions, remedy this to some extent. The reduced BSSE in the LMP2 calculations leads to faster convergence with increasing basis set quality, and accurate results can be obtained with smaller basis sets as compared to canonical MP2. We propose LMP2 as a suitable method to study interactions with pi-electron clouds.