U3 and U8 small nucleolar RNAs (snRNAs) participate in pre-rRNA processing. Like the U1, U2, U4 and U5 major spliceosomal snRNAs, U3 and U8 RNAs are transcribed by RNA polymerase II and their initial 7-methylguanosine (m7G) 5' cap structures subsequently become converted to 2,2,7-trimethylguanosine. However, unlike the polymerase II transcribed spliceosomal snRNAs, which are exported to the cytoplasm for cap hypermethylation, U3 and U8 RNAs undergo cap hypermethylation within the nucleus. Human U3 and U8 RNAs with various cap structures were generated by in vitro transcription, fluorescently labeled and microinjected into nuclei of normal rat kidney (NRK) epithelial cells. When U3 and U8 RNAs containing a m7G cap were microinjected they became extensively localized in nucleoli. U3 and U8 RNAs containing alternative cap structures did not localize in nucleoli nor did U3 or U8 RNAs containing triphosphate 5'-termini. The nucleolar localization of m7G-capped U3 RNA was competed by co-microinjection into the nucleus of a 100-fold molar excess of dinucleotide m7GpppG but not by a 100-fold excess of ApppG dinucleotide. Although it was obviously not possible to assess formation of di- and trimethylguanosine caps on the microinjected U3 and U8 RNAs in these single cell experiments, these results indicate that the initial presence of a m7G cap on U3 and U8 RNAs, most likely together with internal sequence elements, commits these transcripts to the nucleolar localization pathway and point to diverse roles of the m7G cap in the intracellular traffic of various RNAs transcribed by RNA polymerase II.