Nucleosomes are disrupted transiently during eukaryotic transcription, yet the displaced histones must be retained and redeposited onto DNA, to preserve nucleosome density and associated histone modifications. Here, we show that the essential Spt5 processivity factor of RNA polymerase II (Pol II) plays a direct role in this process in budding yeast. Functional orthologues of eukaryotic Spt5 are present in archaea and bacteria, reflecting its universal role in RNA polymerase processivity. However, eukaryotic Spt5 is unique in having an acidic amino terminal tail (Spt5N) that is sandwiched between the downstream nucleosome and the upstream DNA that emerges from Pol II. We show that Spt5N contains a histone-binding motif that is required for viability in yeast cells and prevents loss of nucleosomal histones within actively transcribed regions. These findings indicate that eukaryotic Spt5 combines two essential activities, which together couple processive transcription to the efficient capture and re-deposition of nucleosomal histones.