Mammalian mitochondrial transcription is executed by a single subunit mitochondrial RNA polymerase (Polrmt) and its two accessory factors, mitochondrial transcription factors A and B2 (Tfam and Tfb2m). Polrmt is structurally related to single-subunit phage RNA polymerases, but it also contains a unique N-terminal extension (NTE) of unknown function. We here demonstrate that the NTE functions together with Tfam to ensure promoter-specific transcription. When the NTE is deleted, Polrmt can initiate transcription in the absence of Tfam, both from promoters and non-specific DNA sequences. Additionally, when in presence of Tfam and a mitochondrial promoter, the NTE-deleted mutant has an even higher transcription activity than wild-type polymerase, indicating that the NTE functions as an inhibitory domain. Our studies lead to a model according to which Tfam specifically recruits wild-type Polrmt to promoter sequences, relieving the inhibitory effect of the NTE, as a first step in transcription initiation. In the second step, Tfb2m is recruited into the complex and transcription is initiated.