Diphtheria toxin functions by inhibiting protein synthesis in host cells. It achieves this by catalyzing the ADP-ribosylation of elongation factor 2 (EF-2), a crucial component in the protein synthesis machinery of eukaryotic cells. This modification of EF-2 halts protein production, leading to cell death. The toxin's action is highly specific and devastating, affecting particularly the cells of the upper respiratory tract and heart.