The C-terminal domain of RPB1 (CTD) orchestrates transcription by recruiting regulators to RNA Pol II upon phosphorylation. Recent insights highlight the pivotal role of CTD in driving condensate formation on gene loci. Yet, the molecular mechanism behind how CTD-mediated recruitment of transcriptional regulators influences condensates formation remains unclear. Our study unveils that phosphorylation reversibly dissolves phase separation induced by the unphosphorylated CTD. Phosphorylated CTD, upon specific association with transcription regulatory proteins, forms distinct condensates from unphosphorylated CTD. Function studies demonstrate CTD variants with diverse condensation properties in vitro exhibit difference in promoter binding and mRNA co-processing in cells. Notably, varying CTD lengths lead to alternative splicing outcomes impacting cellular growth, linking the evolution of CTD variation/length with the complexity of splicing from yeast to human. These findings provide compelling evidence for a model wherein post-translational modification enables the transition of functionally specialized condensates, highlighting a co-evolution link between CTD condensation and splicing.