Mitochondria of the yeast Saccharomyces cerevisiae assemble their ribosomes from ribosomal proteins, encoded by the nuclear genome (with one exception), and rRNAs of 15S and 21S, encoded by the mitochondrial genome. Unlike cytoplasmic rRNA, which is highly modified, mitochondrial rRNA contains only three modified nucleotides: a pseudouridine (Psi(2918)) and two 2'-O-methylated riboses (Gm(2270) and Um(2791)) located at the peptidyl transferase centre of 21S rRNA. We demonstrate here that the yeast nuclear genome encodes a mitochondrial protein, named Mrm2, which is required for methylating U(2791) of 21S rRNA, both in vivo and in vitro. Deletion of the MRM2 gene causes thermosensitive respiration and leads to rapid loss of mitochondrial DNA. We propose that Mrm2p belongs to a new class of three eukaryotic RNA-modifying enzymes and is the orthologue of FtsJ/RrmJ, which methylates a nucleotide of the peptidyl transferase centre of Escherichia coli 23S rRNA that is homologous to U(2791) of 21S rRNA. Our data suggest that this universally conserved modified nucleotide plays an important function in vivo, possibly by inducing conformational rearrangement of the peptidyl transferase centre.