The τ subunit of Escherichia coli DNA polymerase III holoenzyme interacts with the α subunit through its C-terminal Domain V, τC16. We show that the extreme C-terminal region of τC16 constitutes the site of interaction with α. The τC16 domain, but not a derivative of it with a C-terminal deletion of seven residues (τC16Δ7), forms an isolable complex with α. Surface plasmon resonance measurements were used to determine the dissociation constant (KD) of the α−τC16 complex to be ∼260 pM. Competition with immobilized τC16 by τC16 derivatives for binding to α gave values of KD of 7 μM for the α−τC16Δ7 complex. Low-level expression of the genes encoding τC16 and τC16▵7, but not τC16Δ11, is lethal to E. coli. Suppression of this lethal phenotype enabled selection of mutations in the 3′ end of the τC16 gene, that led to defects in α binding. The data suggest that the unstructured C-terminus of τ becomes folded into a helix–loop–helix in its complex with α. An N-terminally extended construct, τC24, was found to bind DNA in a salt-sensitive manner while no binding was observed for τC16, suggesting that the processivity switch of the replisome functionally involves Domain IV of τ.