Many flaviviruses are significant human pathogens. The plus-strand RNA genome of a flavivirus contains a 5' terminal cap 1 structure (m(7)GpppAmG). The flavivirus encodes one methyltransferase (MTase), located at the N-terminal portion of the NS5 RNA-dependent RNA polymerase (RdRp). Here we review recent advances in our understanding of flaviviral capping machinery and the implications for drug development. The NS5 MTase catalyzes both guanine N7 and ribose 2'-OH methylations during viral cap formation. Representative flavivirus MTases, from dengue, yellow fever, and West Nile virus (WNV), sequentially generate GpppA → m(7)GpppA → m(7)GpppAm. Despite the existence of two distinct methylation activities, the crystal structures of flavivirus MTases showed a single binding site for S-adenosyl-L-methionine (SAM), the methyl donor. This finding indicates that the substrate GpppA-RNA must be repositioned to accept the N7 and 2'-O methyl groups from SAM during the sequential reactions. Further studies demonstrated that distinct RNA elements are required for the methylations of guanine N7 on the cap and of ribose 2'-OH on the first transcribed nucleotide. Mutant enzymes with different methylation defects can trans complement one another in vitro, demonstrating that separate molecules of the enzyme can independently catalyze the two cap methylations in vitro. In the context of the infectious virus, defects in both methylations, or a defect in the N7 methylation alone, are lethal to WNV. However, viruses defective solely in 2'-O methylation are attenuated and can protect mice from later wild-type WNV challenge. The results demonstrate that the N7 methylation activity is essential for the WNV life cycle and, thus, methyltransferase represents a novel and promising target for flavivirus therapy.