Abstract: Sm-like (Lsm) proteins function in a variety of RNA-processing events. In yeast, the Lsm2-Lsm8 complex binds and stabilizes the spliceosomal U6 snRNA, whereas the Lsm1-Lsm7 complex functions in mRNA decay. Here we report that a third Lsm complex, consisting of Lsm2-Lsm7 proteins, associates with snR5, a box H/ACA snoRNA that functions to guide site-specific pseudouridylation of rRNA. Experiments in which the binding of Lsm proteins to snR5 was reconstituted in vitro reveal that the 3' end of snR5 is critical for Lsm protein recognition. Glycerol gradient sedimentation and sequential immunoprecipitation experiments suggest that the Lsm protein-snR5 complex is partly distinct from the complex formed by snR5 RNA with the box H/ACA proteins Gar1p and Nhp2p. Consistent with a separate complex, Lsm proteins are not required for the function of snR5 in pseudouridylation of rRNA. We demonstrate that in addition to their known nuclear and cytoplasmic locations, Lsm proteins are present in nucleoli. Taken together with previous findings that a small fraction of pre-RNase P RNA associates with Lsm2-Lsm7, our experiments suggest that an Lsm2-Lsm7 protein complex resides in nucleoli, contributing to the biogenesis or function of specific snoRNAs.