Prokaryotic transcription elongation factors GreA and GreB stimulate intrinsic nucleolytic activity of RNA polymerase (RNAP). The proposed biological role of Gre-induced RNA hydrolysis includes transcription proofreading, suppression of transcriptional pausing and arrest, and facilitation of RNAP transition from transcription initiation to transcription elongation. Using an array of biochemical and molecular genetic methods, we mapped the interaction interface between Gre and RNAP and identified the key residues in Gre responsible for induction of nucleolytic activity in RNAP. We propose a structural model in which the C-terminal globular domain of Gre binds near the opening of the RNAP secondary channel, the N-terminal coiled-coil domain (NTD) protrudes inside the RNAP channel, and the tip of the NTD is brought to the immediate vicinity of RNAP catalytic center. Two conserved acidic residues D41 and E44 located at the tip of the NTD assist RNAP by coordinating the Mg2+ ion and water molecule required for catalysis of RNA hydrolysis. If so, Gre would be the first transcription factor known to directly participate in the catalytic act of RNAP.