Regulation of decapping is a critical determinant of mRNA stability. We recently identified hDcp2 as a human decapping enzyme with intrinsic decapping activity. This activity is specific to N(7)-methylated guanosine containing RNA. The hDcp2 enzyme does not function on the cap structure alone and is not sensitive to competition by cap analog, suggesting that hDcp2 requires the RNA for cap recognition. We now demonstrate that hDcp2 is an RNA-binding protein and its recognition and hydrolysis of the cap substrate is dependent on an initial interaction with the RNA moiety. A biochemical characterization of hDcp2 revealed that a 163 amino acid region containing two evolutionarily conserved regions, the Nudix fold hydrolase domain and the adjacent Box B region contained methyl-cap-specific hydrolysis activity. Maximum decapping activity for wild-type as well as truncation mutants of hDcp2 required Mn(2+) as a divalent cation. The demonstration that hDcp2 is an RNA-binding protein with an RNA-dependent decapping activity will now provide new approaches to identify specific mRNAs that are regulated by this decapping enzyme as well as provide novel avenues to control mRNA decapping and turnover by influencing the RNA-binding property of hDcp2.