Transfer RNA (m7G46) methyltransferase catalyzes the methyl transfer from S-adenosylmethionine to N7 atom of the guanine 46 residue in tRNA. Analysis of the Aquifex aeolicus genome revealed one candidate open reading frame, aq065, encoding this gene. The aq065 protein was expressed in Escherichia coli and purified to homogeneity on 15% SDS-polyacrylamide gel electrophoresis. Although the overall amino acid sequence of the aq065 protein differs considerably from that of E. coli YggH, the purified aq065 protein possessed a tRNA (m7G46) methyltransferase activity. The modified nucleoside and its location were determined by liquid chromatography-mass spectroscopy. To clarify the RNA recognition mechanism of the enzyme, we investigated the methyl transfer activity to 28 variants of yeast tRNAPhe and E. coli tRNAThr. It was confirmed that 5'-leader and 3'-trailer RNAs of tRNA precursor are not required for the methyl transfer. We found that the enzyme specificity was critically dependent on the size of the variable loop. Experiments using truncated variants showed that the variable loop sequence inserted between two stems is recognized as a substrate, and the most important recognition site is contained within the T stem. These results indicate that the L-shaped tRNA structure is not required for methyl acceptance activity. It was also found that nucleotide substitutions around G46 in three-dimensional core decrease the activity.