In eukaryotes, two heteroheptameric Sm-like (Lsm) complexes that differ by a single subunit localize to different cellular compartments and have distinct functions in RNA metabolism. The cytoplasmic Lsm1-7p complex promotes mRNA decapping and localizes to processing bodies, whereas the Lsm2-8p complex takes part in a variety of nuclear RNA processing events. The structural features that determine their different functions and localizations are not known. Here, we analyse a range of mutant and hybrid Lsm1 and Lsm8 proteins, shedding light on the relative importance of their various domains in determining their localization and ability to support growth. Although no single domain is either essential or sufficient for cellular localization, the Lsm1p N-terminus may act as part of a nuclear exclusion signal for Lsm1-7p, and the shorter Lsm8p N-terminus contributes to nuclear accumulation of Lsm2-8p. The C-terminal regions seem to play a secondary role in determining localization, with little or no contribution coming from the central Sm domains. The essential Lsm8 protein is remarkably resistant to mutation in terms of supporting viability, whereas Lsm1p appears more sensitive. These findings contribute to our understanding of how two very similar protein complexes can have different properties.