The HEN1 RNA methyltransferase from Arabidopsis thaliana catalyzes S-adenosyl-L-methionine (AdoMet)-dependent 2'-O-methylation at the 3'-termini of small double-stranded RNAs and is a crucial factor in the biogenesis of plant small noncoding RNAs, such as miRNAs or siRNAs. We performed functional and kinetic studies of the full-length HEN1 methyltransferase and its truncated form comprising the C-terminal part of the protein (residues 666-942) with a variety of model RNA substrates. Kinetic parameters obtained with natural RNA substrates indicate that HEN1 is highly catalytically efficient in the absence of any supplementary proteins. We find that the enzyme modifies individual strands in succession leading to complete methylation of an RNA duplex. The rates of methyl group transfer to individual strands of hemimethylated substrates under single turnover conditions are comparable with the multiple turnover rate under steady-state conditions, suggesting that release of reaction products is not a rate-limiting event in the reaction cycle. The truncated protein, which includes conserved motifs characteristic for AdoMet binding, efficiently modifies double-stranded RNA substrates in vitro; however, in contrast to the full-length methyltransferase, it shows weaker interactions with both substrates and is sensitive to base mispairing in the first and second positions of the RNA duplex. Our findings suggest an important role for the N-terminal domains in stabilizing the catalytic complex and indicate that major structural determinants required for selective recognition and methylation of RNA duplexes reside in the C-terminal domain.