Little is known about the mechanism of HCV polymerase-catalyzed nucleotide incorporation and the individual steps employed by this enzyme during a catalytic cycle. In this paper, we applied various biochemical tools and examined the mechanism of polymerase catalysis. We found that formation of a productive RNA-enzyme complex is the slowest step followed by RNA dissociation and initiation of primer strand synthesis. Various groups have reported several classes of small molecule inhibitors of hepatitis C virus NS5B polymerase; however, the mechanism of inhibition for many of these inhibitors is not clear. We undertook a series of detailed mechanistic studies to characterize the mechanisms of inhibition for these HCV polymerase inhibitors. We found that the diketoacid derivatives competitively bind to the elongation NTP pocket in the active site and inhibit both the initiation and elongation steps of polymerization. While both benzimidazoles and benzothiadiazines are noncompetitive with respect to the active site elongation NTP pocket, benzothiadiazine compounds competitively bind to the initiation pocket in the active site and inhibit only the initiation step of de novo RNA polymerization. The benzimidazoles bind to the thumb allosteric pocket and inhibit the conformational changes during RNA synthesis. We also observed a cross interaction between the thumb allosteric pocket and the initiation pocket using inhibitor-inhibitor cross competition studies. This information will be very important in designing combination therapies using two small molecule drugs to treat hepatitis C virus.