For 25 mutant alleles of ret1, encoding the second largest subunit of yeast RNA polymerase III, we have studied the polymerase III nuclease activity, measuring both the total yield and dinucleotide product composition. Mutations affecting amino acids 309 -325 gave slightly elevated nuclease activity. In region 367-376, two mutations gave 12-15-fold increased nuclease activity. Our results do not support the catalytic role in nuclease activity proposed for the conserved DDRD motif in this region (Shirai, T., and Go, M. (1991) Proc. Natl. Acad. Sci. U. S. A. 88, 9056 -9060). Mutations centered on a basic region from amino acids 480 to 490, which aligns with Escherichia coli ␤-subunit sequences between Rif r clusters I and II, produce changes in the relative yields of A-and G-containing dinucleotides. Four such mutant polymerases pause during elongation at GPy sequences and, in addition, have a reduced frequency of termination at T 5 terminator sequences. We propose that the side chains of these mutationally altered amino acids are in direct contact with bases in the RNA-DNA hybrid very near the growing 3-end. Two mutations in domain I near the C terminus produced very large increases in exonuclease activity and strongly increased termination, suggesting that this region also contacts the nascent RNA in the hybrid region.The elongation phase of transcription by DNA-dependent RNA polymerases has long been viewed as a repetitive sequence of choices between two alternative outcomes: addition of another nucleotide to the growing RNA or dissociation of enzyme and RNA from the DNA template, resulting in termination (2). More recently, this interplay was seen to involve the additional options of pausing induced by certain template sequences and resection of transcript 3Ј termini, an exonuclease reaction triggered by both spontaneous pausing and artificially arrested elongation (3, 4).A common element in pausing, termination, and 3Ј-exonuclease action is their tendency to occur preferentially when the elongating polymerase has just incorporated several uridylate residues into RNA. Eukaryotic RNA polymerases II and III undergo spontaneous arrest and long pausing, respectively, at U 2 or longer tracts (5, 6), whereas the sites for pol III 1 transcription termination and Escherichia coli (Rho-independent) transcription termination both occur following long U tracts (7,8).In earlier studies of in vivo termination by yeast RNA polymerase III, we found that genetic alteration of the second largest subunit can change this enzyme's ability to continue transcription downstream of a U 5 tract. Mutant polymerases with increased read-through of an intronic U 5 sequence in the SUP4 UIV allele can efficiently produce biologically active suppressor tRNA Tyr (9, 10). These mutant polymerases also read through the U 5 tract in SUP4⌬94 that is placed at the location of the normal U 7 GU 6 terminator, producing abnormally long pre-tRNAs that are not matured to functional tRNA Tyr . By in vivo mutant screening with these same two SUP4 alleles...