The mechanism by which capping protein (CP) binds barbed ends of actin filaments is not understood, and the physiological significance of CP binding to actin is not defined. The CP crystal structure suggests that the COOH-terminal regions of the CP alpha and beta subunits bind to the barbed end. Using purified recombinant mutant yeast CP, we tested this model. CP lacking both COOH-terminal regions did not bind actin. The alpha COOH-terminal region was more important than that of beta. The significance of CP's actin-binding activity in vivo was tested by determining how well CP actin-binding mutants rescued null mutant phenotypes. Rescue correlated well with capping activity, as did localization of CP to actin patches, indicating that capping is a physiological function for CP. Actin filaments of patches appear to be nucleated first, then capped with CP. The binding constants of yeast CP for actin suggest that actin capping in yeast is more dynamic than in vertebrates.