Abstract: The cellular components required to form the 3' ends of small nuclear RNAs are unknown. U5 snRNA from Saccharomyces cerevisiae is found in two forms that differ in length at their 3' ends (U5L and U5S). When added to a yeast cell free extract, synthetic pre-U5 RNA bearing downstream genomic sequences is processed efficiently and accurately to generate both mature forms of U5. The two forms of U5 are produced in vitro by alternative 3'-end processing. A temperature-sensitive mutation in the RNT1 gene encoding RNase III blocks accumulation of U5L in vivo. In vitro, alternative cleavage of the U5 precursor by RNase III determines the choice between the two multistep pathways that lead to U5L and U5S, one of which (U5L) is strictly dependent on RNase III. These results identify RNase III as a trans-acting factor involved in 3'-end formation of snRNA and show how RNase III might regulate alternative RNA processing pathways.