A distinctive feature of prokaryotic gene expression is the absence of 5'-capped RNA. In eukaryotes, 5',5'-triphosphate-linked 7-methylguanosine protects messenger RNA from degradation and modulates maturation, localization and translation. Recently, the cofactor nicotinamide adenine dinucleotide (NAD) was reported as a covalent modification of bacterial RNA. Given the central role of NAD in redox biochemistry, posttranslational protein modification and signalling, its attachment to RNA indicates that there are unknown functions of RNA in these processes and undiscovered pathways in RNA metabolism and regulation. The unknown identity of NAD-modified RNAs has so far precluded functional analyses. Here we identify NAD-linked RNAs from bacteria by chemo-enzymatic capture and next-generation sequencing (NAD captureSeq). Among those identified, specific regulatory small RNAs (sRNAs) and sRNA-like 5'-terminal fragments of certain mRNAs are particularly abundant. Analogous to a eukaryotic cap, 5'-NAD modification is shown in vitro to stabilize RNA against 5'-processing by the RNA-pyrophosphohydrolase RppH and against endonucleolytic cleavage by ribonuclease (RNase) E. The nudix phosphohydrolase NudC decaps NAD-RNA and thereby triggers RNase-E-mediated RNA decay, while being inactive against triphosphate-RNA. In vivo, ∼13% of the abundant sRNA RNAI is NAD-capped in the presence, and ∼26% in the absence, of functional NudC. To our knowledge, this is the first description of a cap-like structure and a decapping machinery in bacteria.