Guanine N-7 methylation is an essential step in the formation of the m7GpppN cap structure that is characteristic of eukaryotic mRNA 5' ends. The terminal 7-methylguanosine is recognized by cap-binding proteins that facilitate key events in gene expression including mRNA processing, transport, and translation. Here we describe the cloning, primary structure, and properties of human RNA (guanine-7-)methyltransferase. Sequence alignment of the 476-amino acid human protein with the corresponding yeast ABD1 enzyme demonstrated the presence of several conserved motifs known to be required for methyltransferase activity. We also identified a Drosophila open reading frame that encodes a putative RNA (guanine-7-)methyltransferase and contains these motifs. Recombinant human methyltransferase transferred a methyl group from S-adenosylmethionine to GpppG 5'ends, which are formed on RNA polymerase II transcripts by the sequential action of RNA 5'-triphosphatase and guanylyltransferase activities in the bifunctional mammalian capping enzyme. Binding studies demonstrated that the human cap methyltransferase associated with recombinant capping enzyme. Consistent with selective capping of RNA polymerase II transcripts, methyltransferase also formed ternary complexes with capping enzyme and the elongating form of RNA polymerase II.