The C-terminal domain (CTD) of RNA polymerase II regulates transcription through spatially and temporally coordinated events. Previous work had established that the CTD binds DNA but the significance of this interaction has not been determined. The present work shows that the CTD binds DNA in its unphosphorylated form, the form in which it is present in the pre-initiation complex. The CTD/DNA complex is recognized by and is phosphorylated by Cdk7 but not by Cdk9. Model-building studies indicate the structural mechanism underlying such specificity involves interaction of Cdk7 with DNA in the context of the CTD/DNA complex. The model has been tested by mutagenesis experiments. CTD dissociates from DNA following phosphorylation by Cdk7, allowing transcription initiation. The CTD then becomes accessible for further phosphorylation by Cdk9 that drives the transition to transcription elongation.