The largest subunit of RNA polymerase II contains a unique carboxy-terminal domain (CTD) that consists of repeats of the heptapeptide YSPTSPS. RNA polymerase II CTD truncation mutations affect the ability to induce transcription of a subset of yeast genes in vivo, and the lack of response to induction maps to the upstream activating sequences of these genes. Here, we report that progressive truncation of the yeast RNA polymerase II CTD causes progressive loss of trans-activator-dependent transcription in nuclear extracts but has little effect on elongation or termination. Specific transcription, which is reduced by up to 50-fold in these assays, can be restored in the defective nuclear extracts by adding purified wild-type RNA polymerase II. The defects in factor-dependent transcription are observed with templates that are assembled into nucleosomes as well as with templates that are not so assembled. Defects in factor-independent transcription are also observed, but these are not as profound as those observed in the presence of trans-activators. These results indicate that the RNA polymerase II CTD functions during transcription initiation and is required for normal levels of activated transcription in vitro.