The Saccharomyces cerevisiae mRNA capping enzyme consists of two subunits: an RNA 5'-triphosphatase (Cet1) and an mRNA guanylyltransferase (Ceg1). In yeast, the capping enzyme is recruited to the RNA polymerase II (Pol II) transcription complex via an interaction between Ceg1 and the phosphorylated carboxy-terminal domain of the Pol II largest subunit. Previous in vitro experiments showed that the Cet1 carboxy-terminal region (amino acids 265 to 549) carries RNA triphosphatase activity, while the region containing amino acids 205 to 265 of Cet1 has two functions: it mediates dimerization with Ceg1, but it also allosterically activates Ceg1 guanylyltransferase activity in the context of Pol II binding. Here we characterize several Cet1 mutants in vivo. Mutations or deletions of Cet1 that disrupt interaction with Ceg1 are lethal, showing that this interaction is essential for proper capping enzyme function in vivo. Remarkably, the interaction region of Ceg1 becomes completely dispensable when Ceg1 is substituted by the mouse guanylyltransferase, which does not require allosteric activation by Cet1. Although no interaction between Cet1 and mouse guanylyltransferase is detectable, both proteins are present at yeast promoters in vivo. These results strongly suggest that the primary physiological role of the Ceg1-Cet1 interaction is to allosterically activate Ceg1, rather than to recruit Cet1 to the Pol II complex.