For 25 mutant alleles of ret1, encoding the second largest subunit of yeast RNA polymerase III, we have studied the polymerase III nuclease activity, measuring both the total yield and dinucleotide product composition. Mutations affecting amino acids 309-325 gave slightly elevated nuclease activity. In region 367-376, two mutations gave 12-15-fold increased nuclease activity. Our results do not support the catalytic role in nuclease activity proposed for the conserved DDRD motif in this region (Shirai, T., and Go, M. (1991) Proc. Natl. Acad., Sci. U. S. A. 88, 9056-9060), Mutations centered on a basic region front amino acids 480 to 490, which aligns with Escherichia coli beta-subunit sequences between Rif(r) clusters I and II, produce changes in the relative yields of A- and G-containing dinucleotides, Four such mutant polymerases pause during elongation at GPy sequences and, in addition, have a reduced frequency of termination at T-5 terminator sequences. We propose that the side chains of these mutationally altered amino acids are in direct contact with bases in the RNA-DNA hybrid very near the growing S'-end, Two mutations in domain I near the C terminus produced very large increases in exonuclease activity and strongly increased termination, suggesting that this region also contacts the nascent RNA in the hybrid region.