The Rpb4 and Rpb7 subunits of yeast RNA polymerase II form a heterodimeric complex essential for promoter-directed transcription initiation in a reconstituted system. Results of template competition experiments indicate that the Rpb4-Rpb7 complex is not required for stable recruitment of polymerase to active preinitiation complexes, suggesting that Rpb4-Rpb7 mediates an essential step subsequent to promoter binding. Sequence and structure-based alignments revealed a possible OB-fold single-strand nucleic acid-binding motif in Rpb7. Purified Rpb4-Rpb7 complex exhibited both single-strand DNA- and RNA-binding activities, and a small deletion in the putative OB-fold nucleic acid-binding surface of Rpb7 abolished binding activity without affecting the stability of the Rpb4-Rpb7 complex or its ability to associate with polymerase. The same mutation destroyed the transcription activity of the Rpb4-Rpb7 complex. A separate deletion elsewhere in the OB-fold motif of Rpb7 also blocked transcription but did not affect nucleic acid binding, suggesting that the OB-fold of Rpb7 mediates both DNA-protein and protein-protein interactions required for productive initiation.