In addition to their role in reverse transcription, the R-region sequences of some retroviruses affect viral transcription. The first 28 nucleotides of the R region within the long terminal repeat (LTR) of the murine type C retrovirus SL3 were predicted to form a stem-loop structure. We tested whether this structure affected the transcriptional activity of the viral LTR. Mutations that altered either side of the stem and thus disrupted base pairing were generated. These decreased the level of expression of a reporter gene under the control of viral LTR sequences about 5-fold in transient expression assays and 10-fold in cells stably transformed with the LTR-reporter plasmids. We also generated a compensatory mutant in which both the ascending and descending sides of the stem were mutated such that the nucleotide sequence was different but the predicted secondary structure was maintained. Most of the activity of the wild-type SL3 element was restored in this mutant. Thus, the stem-loop structure was important for the maximum activity of the SL3 LTR. Primer extension analysis indicated that the stem-loop structure affected the levels of cytoplasmic RNA. Nuclear run-on assays indicated that deletion of the R region had a small effect on transcriptional initiation and no effect on RNA polymerase processivity. Thus, the main effect of the R-region element was on one or more steps that occurred after the template was transcribed by RNA polymerase. This finding implied that the main function of the R-region element involved RNA processing. R-region sequences of human immunodeficiency virus type 1 or mouse mammary tumor virus could not replace the SL3 element. R-region sequences from an avian reticuloendotheliosis virus partially substituted for the SL3 sequences. R-region sequences from Moloney murine leukemia virus or feline leukemia virus did function in place of the SL3 element. Thus, the R region element appears to be a general feature of the mammalian type C genus of retroviruses.