The conserved eukaryotic Paf1 complex regulates RNA synthesis by RNA polymerase II at multiple levels, including transcript elongation, transcript termination, and chromatin modifications. To better understand the contributions of the Paf1 complex to transcriptional regulation, we generated mutations that alter conserved residues within the Rtf1 subunit of the Saccharomyces cerevisiae Paf1 complex. Importantly, single amino acid substitutions within a region of Rtf1 that is conserved from yeast to humans, which we termed the histone modification domain, resulted in the loss of histone H2B ubiquitylation and impaired histone H3 methylation. Phenotypic analysis of these mutations revealed additional defects in telomeric silencing, transcription elongation, and prevention of cryptic initiation. We also demonstrated that amino acid substitutions within the Rtf1 histone modification domain disrupt 3'-end formation of snoRNA transcripts and identify a previously uncharacterized regulatory role for the histone H2B K123 ubiquitylation mark in this process. Cumulatively, our results reveal functionally important residues in Rtf1, better define the roles of Rtf1 in transcription and histone modification, and provide strong genetic support for the participation of histone modification marks in the termination of noncoding RNAs.