Nucleoli isolated from Novikoff hepatoma cells of the rat were previously shown to carry out synthesis of predominantly ribosomal precursor RNA and methylation of this RNA in vitro. In order to develop in vitro systems for further detailed study of these processes and their interrelationships, isolated nucleoli were incubated in a complete RNA-synthesizing medium using (5-3H)cytidine 5'-triphosphate or S-adenoxyl(methyl-3H)methionine to measure the activities of RNA synthesis and methylation, respectively, under the same reaction conditions. Methylation of the ribose of the nascent ribosomal precursor RNA predominated. It occurred in close coordination with the transcriptional step by RNA polymerase as shown by the kinetic data, the analysis of labeled RNA in sucrose gradients, the inhibition by increased ionic strength or actinomycin D, and the release of labeled nucleotides by a 3'-exonuclease, venom phosphodiesterase. Methylation of the RNA bases occurred more slowly, continued longer after transcription ceased, and appeared to follow later in the processing of the RNA. Certain divalent cations (Mg2+, Mn2+, and Ca2+ at higher concentrations, and Zn2+ and Cu2+) inhibited both RNA synthesis and methylation to similar extents. RNase inhibitors (bentonite and dextran sulfate) at low concentration inhibited methylation while stimulating RNA synthesis, and pyrophosphate greatly decreased RNA synthesis with relatively little effect on methylation. These results indicated that RNA polymerase and ribosomal RNA methylases can function independently despite their close relationship. An exogenous substrate for the nucleolar rRNA methylases was found: nuclear RNA prepared from Novikoff hepatoma cells, cultured in the absence of methionine, served as a good substrate for methylation of both ribose and bases. Other exogenous RNAs, including cytoplasmic ribosomal RNA from these methionine-starved cells, nucleolar RNA from normal cells, and wheat germ ribosomal RNA were almost devoid of methyl-acceptor activity. A description of these parameters helps establish isolated nucleoli as a suitable system for further study of interaction of RNA polymerase, methylases, and nucleases in control of synthesis of ribosomal RNA.