The RNA components of small nuclear ribonucleoproteins (U snRNPs) possess a characteristic 5'-terminal trimethylguanosine cap structure (m3G cap). This cap is an important component of the nuclear localization signal of U snRNPs. It arises by hypermethylation of a cotranscriptionally added m7G cap. Here we describe an in vitro assay for the hypermethylation, which employs U snRNP particles reconstituted in vitro from purified components and subsequent analysis by m3G cap-specific immunoprecipitation. Complementation studies in vitro revealed that both cytosol and S-adenosylmethionine are required for the hypermethylation of an m7G-capped U1 snRNP reconstituted in vitro, indicating that the U1 snRNA-(guanosine-N2)-methyltransferase is a trans-active non-snRNP protein. Chemical modification revealed one cytoplasmic component required for hypermethylation and one located on the snRNP: these components have different patterns of sensitivity to modification by N-ethylmaleimide and iodoacetic acid (IAA). In the presence of cytosol and S-adenosylmethionine, an intact Sm core domain is a necessary and sufficient substrate for cap hypermethylation. These data, together with our observation that isolated native U1 snRNPs but not naked U1 RNA inhibit the trimethylation of in vitro-reconstituted U1 snRNP, indicate that the Sm core binds the methyltransferase specifically. Moreover, isolated native U2 snRNP also inhibits trimethylation of U1 snRNP, suggesting that other Sm-class U snRNPs might share the same methyltransferase. IAA modification of m7G-capped U1 snRNPs inhibited hypermethylation when they were microinjected into Xenopus oocytes and consequently also inhibited nuclear import. In contrast, modification with IAA of m3G-capped U1 snRNPs reconstituted in vitro did not interfere with their nuclear transport in oocytes. These data suggest that m3G cap formation and nuclear transport of U1 snRNPs are mediated by distinct factors, which require distinct binding sites on the Sm core of U1 snRNP.