Rnt1p is an RNase III homolog from budding yeast, required for processing snRNAs, snoRNAs, and rRNA. Numerous Rnt1p RNA substrates share potential to form a duplex structure with a terminal four-base loop with the sequence AGNN. Using a synthetic RNA modeled after the 25S rRNA 3′ ETS cleavage site we find that the AGNN loop is an important determinant of substrate selectivity. When this loop sequence is altered, the rate of Rnt1p cleavage is reduced. The reduction in cleavage rate can be attributed to reduced binding of the mutant substrate as measured by a gel-shift assay. Deletion of the nonconserved N-terminal domain of Rnt1p does not affect cleavage site choice or the ability of the enzyme to distinguish substrates that contain the AGNN loop, indicating that this region is not required for selective cleavage. Strikingly, a recombinant fragment of Rnt1p containing little more than the dsRBD is able to discriminate between wild-type and mutant loop sequences in a binding assay. We propose that a major determinant of AGNN loop recognition by Rnt1p is present in its dsRBD.