Werner protein (WRN), member of the RecQ helicase family, is a helicase and exonuclease, and participates in multiple DNA metabolic processes including DNA replication, recombination and DNA repair. Mutations in the WRN gene cause Werner syndrome, associated with premature aging, genome instability and cancer predisposition. The RecQ C-terminal (RQC) domain of WRN, containing α2-α3 loop and β-wing motifs, is important for DNA binding and for many protein interactions. To better understand the critical functions of this domain, we generated recombinant WRN proteins (using a novel purification scheme) with mutations in Arg-993 within the α2-α3 loop of the RQC domain and in Phe-1037 of the μ-wing motif. We then studied the catalytic activities and DNA binding of these mutant proteins as well as some important functional protein interactions. The mutant proteins were defective in DNA binding and helicase activity, and interestingly, they had deficient exonuclease activity and strand annealing function. The RQC domain of WRN has not previously been implicated in exonuclease or annealing activities. The mutant proteins could not stimulate NEIL1 incision activity as did the wild type. Thus, the Arg-993 and Phe-1037 in the RQC domain play essential roles in catalytic activity, and in functional interactions mediated by WRN.