Inactivation of the HRPT2 tumor suppressor gene is associated with the pathogenesis of the hereditary hyperparathyroidism-jaw tumor syndrome and malignancy in sporadic parathyroid tumors. The cellular function of the HPRT2 gene product, parafibromin, has not been defined yet. Here we show that parafibromin physically interacts with human orthologs of yeast Paf1 complex components, including PAF1, LEO1, and CTR9, that are involved in transcription elongation and 3' end processing. It also associates with modified forms of the large subunit of RNA polymerase II, in particular those phosphorylated on serine 5 or 2 within the carboxy-terminal domain, that are important for the coordinate recruitment of transcription elongation and RNA processing machineries during the transcription cycle. These interactions depend on a C-terminal domain of parafibromin, which is deleted in ca. 80% of clinically relevant mutations. Finally, RNAi-induced downregulation of parafibromin promotes entry into S phase, implying a role for parafibromin as an inhibitor of cell cycle progression. Taken together, these findings link the tumor suppressor parafibromin to the transcription elongation and RNA processing pathway as a PAF1 complex- and RNA polymerase II-bound protein. Dysfunction of this pathway may be a general phenomenon in the majority of cases of hereditary parathyroid cancer.