Formation of the 5' cap structure of eukaryotic mRNAs occurs via transfer of GMP from GTP to the 5' terminus of the primary transcript. RNA guanylyltransferase, the enzyme that catalyzes this reaction, has been isolated from many viral and cellular sources. Though differing in molecular weight and subunit structure, the various guanylyltransferases employ a common catalytic mechanism involving a covalent enzyme-(Lys-GMP) intermediate. Saccharomyces cerevisiae CEG1 is the sole example of a cellular capping enzyme gene. In this report, we describe the identification and characterization of the PCE1 gene encoding the capping enzyme from Schizosaccharomyces pombe. PCE1 was isolated from a cDNA library by functional complementation in Sa. cerevisiae. Induced expression of PCE1 in bacteria and in yeast confirmed that the 47-kDa Sc. pombe protein was enzymatically active. The amino acid sequence of PCE1 is 38% identical (152 of 402 residues) to the 52-kDa capping enzyme from Sa. cerevisiae. Comparison of the two cellular capping enzymes with guanylyltransferases encoded by DNA viruses revealed local sequence similarity at the enzyme's active site and at four additional collinear motifs. Mutational analysis of yeast CEG1 demonstrated that four of the five conserved motifs are essential for capping enzyme function in vivo. Remarkably, the same motifs are conserved in the polynucleotide ligase family of enzymes that employ an enzyme-(Lys-AMP) intermediate. These findings illuminate a shared structural basis for covalent catalysis in nucleotidyl transfer and suggest a common evolutionary origin for capping enzymes and ligases.