Hepatitis E virus (HEV), a positive-strand RNA virus, is an important causative agent of waterborne hepatitis. Expression of cDNA (encoding amino acids 1 to 979 of HEV nonstructural open reading frame 1) in insect cells resulted in synthesis of a 110-kDa protein (P110), a fraction of which was proteolytically processed to an 80-kDa protein. P110 was tightly bound to cytoplasmic membranes, from which it could be released by detergents. Immunopurified P110 catalyzed transfer of a methyl group from S-adenosylmethionine (AdoMet) to GTP and GDP to yield m(7)GTP or m(7)GDP. GMP, GpppG, and GpppA were poor substrates for the P110 methyltransferase. There was no evidence for further methylation of m(7)GTP when it was used as a substrate for the methyltransferase. P110 was also a guanylyltransferase, which formed a covalent complex, P110-m(7)GMP, in the presence of AdoMet and GTP, because radioactivity from both [alpha-(32)P]GTP and [(3)H-methyl]AdoMet was found in the covalent guanylate complex. Since both methyltransferase and guanylyltransferase reactions are strictly virus specific, they should offer optimal targets for development of antiviral drugs. Cap analogs such as m(7)GTP, m(7)GDP, et(2)m(7)GMP, and m(2)et(7)GMP inhibited the methyltransferase reaction. HEV P110 capping enzyme has similar properties to the methyltransferase and guanylyltransferase of alphavirus nsP1, tobacco mosaic virus P126, brome mosaic virus replicase protein 1a, and bamboo mosaic virus (a potexvirus) nonstructural protein, indicating there is a common evolutionary origin of these distantly related plant and animal virus families.