The phosphoprotein (P) of vesicular stomatitis virus (VSV) serotypes New Jersey [P(NJ)] and Indiana [P(I)] contains a highly conserved carboxy-terminal domain which is required for binding to the cognate N-RNA template as well as to form a soluble complex with the nucleocapsid protein N in vivo. We have shown that the deletion of 11 amino acids from the Cterminal end of the P[I] protein abolishes both the template binding and the complex forming activity with the N protein. Within this region, there are conserved basic amino acid residues (R260 and K262) that are potential candidates for such interactions. We have generated mutant P proteins by substitution of these basic amino acid residues with alanine and studied their role in both transcription and replication. We have found that the R260A mutant failed to bind to the N-RNA template, whereas the K262A mutant bound efficiently as the wild-type protein. The R260A mutant, as expected, was unable to supper? mRNA synthesis in vitro in a transcription reconstitution reaction as well as transcription in vivo of a minigenome using a reverse genetic approach. However, the K262A mutant supported low level of transcription (12%) both in vitro and in vivo, suggesting that direct template binding of P protein through the C-terminal domain is necessary hut not sufficient for optimal transcription. Using a two-hybrid system we have also shown that both R260A and K262A mutants interact inefficiently with the L protein, suggesting further that the two point mutants display differential phenotype with respect to binding to the template. In addition, both R260A and K262A mutants were shown to interact efficiently with the N protein in vivo, indicating that these mutants form N-P complexes which are presumably required for replication. This contention is further supported by the demonstration that these mutants support efficient replication of a DI RNA in vivo. Since the transcription defective P mutants can support efficient replication, we propose that the transcriptase and the replicase are composed of hive distinct complexes containing (L-P2-3) and L-(N-P), respectively. (C) 1997 Academic Press.