The Mediator kinase module regulates eukaryotic transcription by phosphorylating transcription-related targets and by modulating the association of Mediator and RNA polymerase II. The activity of its catalytic core, cyclin-dependent kinase 8 (CDK8), is controlled by Cyclin C and regulatory subunit MED12, with its deregulation contributing to numerous malignancies. Here, we combine in vitro biochemistry, cross-linking coupled to mass spectrometry, and in vivo studies to describe the binding location of the N-terminal segment of MED12 on the CDK8/Cyclin C complex and to gain mechanistic insights into the activation of CDK8 by MED12. Our data demonstrate that the N-terminal portion of MED12 wraps around CDK8, whereby it positions an “activation helix” close to the T-loop of CDK8 for its activation. Intriguingly, mutations in the activation helix that are frequently found in cancers do not diminish the affinity of MED12 for CDK8, yet likely alter the exact positioning of the activation helix. Furthermore, we find the transcriptome-wide gene-expression changes in human cells that result from a mutation in the MED12 activation helix to correlate with deregulated genes in breast and colon cancer. Finally, functional assays in the presence of kinase inhibitors reveal that binding of MED12 remodels the active site of CDK8 and thereby precludes the inhibition of ternary CDK8 complexes by type II kinase inhibitors. Taken together, our results not only allow us to propose a revised model of how CDK8 activity is regulated by MED12, but also offer a path forward in developing small molecules that target CDK8 in its MED12-bound form.