Transfer RNA (guanosine-2')-methyltransferase (Gm-methylase) catalyzes the transfer of a methyl group from S-adenosyl-l-methionine to 2'-OH of G18 in the D-loop of tRNA. Based on their mode of tRNA recognition, Gm-methylases can be divided into the following two types: type I having broad specificity toward the substrate tRNA, and type II that methylates only limited tRNA species. Protein synthesized by in vitro cell-free translation revealed that Gm-methylase encoded in the Aquifex aeolicus genome is a novel type II enzyme. Experiments with chimeric tRNAs and mini- and micro-helix RNAs showed that the recognition region of this enzyme is included within the D-arm structure of tRNALeu and that a bulge is essentially required. Variants of tRNALeu, tRNASer, and tRNAPhe revealed that a combination of certain base pairs in the D-stem is strongly recognized by the enzyme, that 4 bp in the D-stem enhance methyl acceptance activity, and that the Py16Py17G18G19 sequence is important for efficient methyl transfer. The methyl acceptance activities of all the A. aeolicus tRNA genes, which can be classified into 14 categories on the basis of their D-arm structure, were tested. The results clearly showed that the substrate recognition mechanism elucidated by the variant experiments was applicable to their native substrates.