Transcription of vaccinia virus early genes in vitro requires the virally encoded RNA polymerase and early transcription factor, VETF. VETF is a promoter-binding protein with DNA-dependent ATPase activity. We have investigated the functional role of VETF in transcription activation by analyzing the interaction between the RNA polymerase and promoter DNA. Using a gel shift assay, a novel protein-DNA complex was detected that required both RNA polymerase and VETF. The complex was suggested to be a transcription initiation complex by its ability to incorporate 32P-labeled nucleotides in combinations compatible with synthesis of a short RNA chain. Competition binding studies indicated that the RNA polymerase associated specifically with a viral early promoter. These experiments demonstrate that VETF activates transcription by directly recruiting the RNA polymerase to the promoter. Sedimentation analysis showed that VETF and RNA polymerase did not form a stable complex unless promoter DNA was present, indicating that protein-protein contacts are not the sole basis for initiation complex assembly. DNase I cleavage and methylation interference analyses revealed a hyperreactive site in the center of the promoter. Radiolabeling of RNA in the RNA polymerase-promoter complex did not occur when AMP-PNP (adenyl-5'-yl imidodiphosphate) was substituted for ATP, suggesting that ATP hydrolysis is required for the initiation of transcription. A model is proposed to account for these findings.