U5 snRNA is an essential pre-mRNA splicing factor whose function remains enigmatic. Specific mutations in a conserved single-stranded loop sequence in yeast U5 snRNA can activate cleavage of G1----A mutant pre-mRNAs at aberrant 5' splice sites and facilitate processing of dead-end lariat intermediates to mRNA. Activation of aberrant 5' cleavage sites involves base pairing between U5 snRNA and nucleotides upstream of the cleavage site. Processing of dead-end lariat intermediates to mRNA correlates with base pairing between U5 and the first two bases in exon 2. The loop sequence in U5 snRNA may therefore by intimately involved in the transesterification reactions at 5' and 3' splice sites. This pattern of interactions is strikingly reminiscent of exon recognition events in group II self-splicing introns and is consistent with the notion that U5 snRNA may be related to a specific functional domain from a group II-like self-splicing ancestral intron.