Sequences of the untranslated regions at the 5' and 3' ends (5'UTR and 3'UTR) of the hepatitis C virus (HCV) RNA genome are highly conserved and contain cis-acting RNA elements for HCV RNA replication. The HCV 5'UTR consists of two distinct RNA elements, a short 5'-proximal stem-loop RNA element (nucleotides 1 to 43) and a longer element of internal ribosome entry site. To determine the sequence and structural requirements of the 5'-proximal stem-loop RNA element in HCV RNA replication and translation, a mutagenesis analysis was preformed by nucleotide deletions and substitutions. Effects of mutations in the 5'-proximal stem-loop RNA element on HCV RNA replication were determined by using a cell-based HCV replicon replication system. Deletion of the first 20 nucleotides from the 5' end resulted in elimination of cell colony formation. Likewise, disruption of the 5'-proximal stem-loop by nucleotide substitutions abolished the ability of HCV RNA to induce cell colony formation. However, restoration of the 5'-proximal stem-loop by compensatory mutations with different nucleotides rescued the ability of the subgenomic HCV RNA to replicate in Huh7 cells. In addition, deletion and nucleotide substitutions of the 5'-proximal stem-loop structure, including the restored stem-loop by compensatory mutations, all resulted in reduction of translation by two- to fivefold, suggesting that the 5'-proximal stem-loop RNA element also modulates HCV RNA translation. These findings demonstrate that the 5'-proximal stem-loop of the HCV RNA is a cis-acting RNA element that regulates HCV RNA replication and translation.