We have investigated the interaction of VP39, the vaccinia-encoded mRNA cap-specific 2'-O-methyltransferase, with its capped RNA substrate. Two sites on the protein surface, responsible for binding the terminal cap nucleotide (m7G) and cap-proximal RNA, were characterized, and a third (downstream RNA binding) site was identified. Regarding the crystallographically defined m7G binding pocket, VP39 showed significant activity with adenine-capped RNA. Although VP39 mutants lacking specific m7G-contact side chains within the pocket showed reduced catalytic activity, none was transformed into a cap-independent RNA methyltransferase. Moreover, each retained a preference for m7G and A over unmethylated G as the terminal cap nucleotide, indicating a redundancy of m7G-contact residues able to confer cap-type specificity. Despite containing the 2'-O-methylation site, m7GpppG (cap dinucleotide) could not be methylated by VP39, but m7GpppGUbiotinp could. This indicated the minimum-length 2'-O-methyltransferase substrate to be either m7GpppGp, m7GpppGpN, or m7GpppGpNp. RNA-protein contacts immediately downstream of the m7GpppG moiety were found to be pH-sensitive. This was detectable only in the context of a weakened interaction of near-minimum-length substrates with VP39's m7G binding pocket (through the use of either adenine-capped substrate or a VP39 pocket mutant), as a dramatic elevation of KM at pH values above 7.5. KM values for substrates with RNA chain lengths of 2-6 nt were between 160 and 230 nM, but dropped to 9-15 nM upon increasing chain lengths to 20-50 nt. This suggested the binding of regions of the RNA substrate >6 nt from the 5' terminus to a previously unknown site on the VP39 surface.