Bioconjugation reactions, such as protein PEGylation, generally require excess reagents because of their inefficiency. Intriguingly, few reports have investigated the fundamental causes of this inefficiency. This study demonstrates that the excluded volume effect (EVE)─caused by the mutual repulsion of methoxy poly(ethylene glycol) (mPEG) and proteins under typical PEGylation conditions─causes proteins and protein-reactive mPEG (5 kDa) to self-associate into separate "protein-rich" and "mPEG-rich" nano-domains (i.e., soluble self-assemblies). To overcome this obstacle to reaction, "unreactive" low-molecular-weight mPEG was added as a co-solvent to promote the association between the larger protein and the reactive mPEG molecules by harnessing the same EVE. The near complete PEGylation of lysozyme could be achieved with close to stoichiometric amounts of reactive mPEG, and beneficial effects were observed for other proteins. Considering the general nature of the EVE (e.g., salting-out and PEGying-out), this study provides important perspectives on enhancing bioconjugation reactions, which are relevant to many nanoscale systems.