Lysolecithin permeabilization of vaccinia virus-infected cells was employed to prepare extracts that support faithful transcription initiation in vitro on plasmids possessing early, intermediate, and late viral gene promoters. Conditions which optimize transcription from each promoter were defined. The in vitro system was used to investigate the multifunctional viral mRNA capping enzyme, which also functions as the viral early gene transcription termination factor (VTF) and a viral intermediate gene transcription initiation factor. A low level of signal-dependent termination of early gene transcription was observed in vitro which could be elevated by the addition of pure mRNA capping enzyme. VTF-dependent transcription termination was found to be restricted to templates that possessed an early promoter. This restriction mimics that observed in vivo and demonstrates that transcription termination is limited to RNA polymerase molecules that recognize early rather than intermediate or late gene promoters. Extracts prepared from cells infected at the nonpermissive temperature with a virus containing a ts mutation in gene D12L, which encodes the small subunit of VTF, are incapable of supporting both early gene transcription termination and intermediate gene transcription initiation. Both activities are restored upon addition of the purified wild-type mRNA capping enzyme.