In S. cerevisiae, the 5'-3' exonuclease Rat1p partakes in transcription termination. Although Rat1p-mediated RNA degradation has been suggested to play a role for this activity, the exact mechanisms by which Rat1p helps release RNA polymerase II (RNAPII) from the DNA template are poorly understood. Here we describe a function of Rat1p in regulating phosphorylation levels of the C-terminal domain (CTD) of the largest RNAPII subunit, Rpb1p, during transcription elongation. The rat1-1 mutant exhibits highly elevated levels of CTD phosphorylation as well as RNAPII distribution and transcription termination defects. These phenotypes are all rescued by overexpression of the CTD phosphatase Fcp1p, suggesting a functional relationship between the absence of Rat1p activity, elevated CTD phosphorylation, and transcription defects. We also demonstrate that rat1-1 cells display increased RNAPII transcription kinetics, a feature that may contribute to the cellular phenotypes of the mutant. Consistently, the rat1-1 allele is synthetic lethal with the rpb1-E1103G mutation, causing increased RNAPII speed, and is suppressed by the rpb2-10 mutation, causing slowed transcription. Thus, Rat1p plays more complex roles in controlling transcription than previously thought.