The RNA:pseudouridine (Psi) synthase Pus7p of Saccharomyces cerevisiae is a multisite-specific enzyme that is able to modify U(13) in several yeast tRNAs, U(35) in the pre-tRNA(Tyr) (GPsiA), U(35) in U2 small nuclear RNA, and U(50) in 5 S rRNA. Pus7p belongs to the universally conserved TruD-like family of RNA:Psi-synthases found in bacteria, archaea, and eukarya. Although several RNA substrates for yeast Pus7p have been identified, specificity of their recognition and modification has not been studied. However, conservation of a 7-nt-long sequence, including the modified U residue, in all natural Pus7p substrates suggested the importance of these nucleotides for Pus7p recognition and/or catalysis. Using site-directed mutagenesis, we designed a set of RNA variants derived from the yeast tRNA(Asp)(GUC), pre-tRNA(Tyr)(GPsiA), and U2 small nuclear RNA and tested their ability to be modified by Pus7p in vitro. We demonstrated that the highly conserved U(-2) and A(+1) residues (nucleotide numbers refer to target U(0)) are crucial identity elements for efficient modification by Pus7p. Nucleotide substitutions at other surrounding positions (-4, -3, +2, +3) have only a moderate effect. Surprisingly, the identity of the nucleotide immediately 5' to the target U(0) residue (position -1) is not important for efficient modification. Alteration of tRNA three-dimensional structure had no detectable effect on Pus7p activity at position 13. However, our results suggest that the presence of at least one stem-loop structure including or close to the target U nucleotide is required for Pus7p-catalyzed modification.