An mRNA(nucleoside-2'-)-methyltransferase purified from vaccinia virus was shown to methylate the penultimate nucleoside of RNA ending in m7G(5')pppN-. By contrast, RNAs ending in pN-, ppN-, or even G(5')pppN- are not methyl acceptors. This specificity indicates that 2'-O-methylation is the final step in the formation of the m7G(5')pppNm- cap structure. Both adenosine and guanosine are methylated, in accordance with the presence of these nucleosides in the penultimate position of vaccinia virus mRNAs. Studies with homopolyribonucleotides containing m7G(5')pppN ends indicated that poly(A) and poly(I) were the best methyl acceptors while significant but much less activity was obtained with poly(G), poly(U), and poly(C). Simple dinucleotides of the type m7G(5')pppN, however, are poor substrates and do not compete with capped RNA. Additional studies indicate that the methyltransferase has a pH optimum of 7.5, does not require divalent cations, is inhibited by S-adenosylhomocysteine, has a Km of 2.0 micrometer for S-adenosylmethionine, a Km of approximately 5 nM for brome mosaic virus RNA, and kinetics consistent with a random bireactant mechanism.