Escherichia coli pseudouridine synthase RluF is dedicated to modifying U2604 in a stem-loop of 23S RNA, while a homologue, RluB, modifies the adjacent base, U2605. Both uridines are in the same RNA stem, separated by approximately 4 A. The 3.0 A X-ray crystal structure of RluF bound to the isolated stem-loop, in which U2604 is substituted by 5-fluorouridine to prevent catalytic turnover, shows RluF distinguishes closely spaced bases in similar environments by a selectivity mechanism based on a frameshift in base pairing. The RNA stem-loop is bound to a conserved binding groove in the catalytic domain. A base from a bulge in the stem, A2602, has folded into the stem, forcing one strand of the RNA stem to translate by one position and thus positioning U2604 to flip into the active site. RluF does not modify U2604 in mutant stem-loops that lack the A2602 bulge and shows dramatically higher activity for a stem-loop with a mutation designed to facilitate A2602 refolding into the stem with concomitant RNA strand translation. Residues whose side chains contact rearranged bases in the bound stem-loop, while conserved among RluFs, are not conserved between RluFs and RluBs, suggesting that RluB does not bind to the rearranged stem loop.