The heterodimeric nuclear cap-binding complex (CBC) binds to the 5' cap structure of RNAs in the nucleus and plays a central role in their diverse maturation steps. We describe the crystal structure at 2.1 A resolution of human CBC bound to an m(7)GpppG cap analogue. Comparison with the structure of uncomplexed CBC shows that cap binding induces co-operative folding around the dinucleotide of some 50 residues from the N- and C-terminal extensions to the central RNP domain of the small subunit CBP20. The cap-bound conformation of CBP20 is stabilized by an intricate network of interactions both to the ligand and within the subunit, as well as new interactions of the CBP20 N-terminal tail with the large subunit CBP80. Although the structure is very different from that of other known cap-binding proteins, such as the cytoplasmic cap-binding protein eIF4E, specificity for the methylated guanosine again is achieved by sandwiching the base between two aromatic residues, in this case two conserved tyrosines. Implications for the transfer of capped mRNAs to eIF4E, required for translation initiation, are discussed.