The human double-stranded RNA (dsRNA)-dependent protein kinase PKR inhibits protein synthesis by phosphorylating translation initiation factor 2alpha (eIF2alpha). Vaccinia virus E3L encodes a dsRNA binding protein that inhibits PKR in virus-infected cells, presumably by sequestering dsRNA activators. Expression of PKR in Saccharomyces cerevisiae inhibits protein synthesis by phosphorylation of eIF2alpha, dependent on its two dsRNA binding motifs (DRBMs). We found that expression of E3 in yeast overcomes the lethal effect of PKR in a manner requiring key residues (Lys-167 and Arg-168) needed for dsRNA binding by E3 in vitro. Unexpectedly, the N-terminal half of E3, and residue Trp-66 in particular, also is required for anti-PKR function. Because the E3 N-terminal region does not contribute to dsRNA binding in vitro, it appears that sequestering dsRNA is not the sole function of E3 needed for inhibition of PKR. This conclusion was supported by the fact that E3 activity was antagonized, not augmented, by overexpressing the catalytically defective PKR-K296R protein containing functional DRBMs. Coimmunoprecipitation experiments showed that a majority of PKR in yeast extracts was in a complex with E3, whose formation was completely dependent on the dsRNA binding activity of E3 and enhanced by the N-terminal half of E3. In yeast two-hybrid assays and in vitro protein binding experiments, segments of E3 and PKR containing their respective DRBMs interacted in a manner requiring E3 residues Lys-167 and Arg-168. We also detected interactions between PKR and the N-terminal half of E3 in the yeast two-hybrid and lambda repressor dimerization assays. In the latter case, the N-terminal half of E3 interacted with the kinase domain of PKR, dependent on E3 residue Trp-66. We propose that effective inhibition of PKR in yeast requires formation of an E3-PKR-dsRNA complex, in which the N-terminal half of E3 physically interacts with the protein kinase domain of PKR.