The TRM5 gene encodes a tRNA (guanine-N1-)-methyltransferase (Trm5p) that methylates guanosine at position 37 (m(1)G37) in cytoplasmic tRNAs in Saccharomyces cerevisiae. Here we show that Trm5p is also responsible for m(1)G37 methylation of mitochondrial tRNAs. The TRM5 open reading frame encodes 499 amino acids containing four potential initiator codons within the first 48 codons. Full-length Trm5p, purified as a fusion protein with maltose-binding protein, exhibited robust methyltransferase activity with tRNA isolated from a Delta trm5 mutant strain, as well as with a synthetic mitochondrial initiator tRNA (tRNA(Met)(f)). Primer extension demonstrated that the site of methylation was guanosine 37 in both mitochondrial tRNA(Met)(f) and tRNA(Phe). High pressure liquid chromatography analysis showed the methylated product to be m(1)G. Subcellular fractionation and immunoblotting of a strain expressing a green fluorescent protein-tagged version of the TRM5 gene revealed that the enzyme was localized to both cytoplasm and mitochondria. The slightly larger mitochondrial form was protected from protease digestion, indicating a matrix localization. Analysis of N-terminal truncation mutants revealed that a Trm5p active in the cytoplasm could be obtained with a construct lacking amino acids 1-33 (Delta1-33), whereas production of a Trm5p active in the mitochondria required these first 33 amino acids. Yeast expressing the Delta1-33 construct exhibited a significantly lower rate of oxygen consumption, indicating that efficiency or accuracy of mitochondrial protein synthesis is decreased in cells lacking m(1)G37 methylation of mitochondrial tRNAs. These data suggest that this tRNA modification plays an important role in reading frame maintenance in mitochondrial protein synthesis.