A stop or nonsense codon is an in-frame triplet within a messenger RNA that signals the termination of translation. One common feature shared among all three nonsense codons (UAA, UAG, and UGA) is a uridine present at the first codon position. It has been recently shown that the conversion of this uridine into pseudouridine (Ψ) suppresses translation termination, both in vitro and in vivo. Furthermore, decoding of the pseudouridylated nonsense codons is accompanied by the incorporation of two specific amino acids in a nonsense codon-dependent fashion. Ψ differs from uridine by a single N¹H group at the C5 position; how Ψ suppresses termination and, more importantly, enables selective decoding is poorly understood. Here, we provide molecular rationales for how pseudouridylated stop codons are selectively decoded. Our analysis applies crystal structures of ribosomes in varying states of translation to consider weakened interaction of Ψ with release factor; thermodynamic and geometric considerations of the codon-anticodon base pairs to rank and to eliminate mRNA-tRNA pairs; the mechanism of fidelity check of the codon-anticodon pairing by the ribosome to evaluate noncanonical codon-anticodon base pairs and the role of water. We also consider certain tRNA modifications that interfere with the Ψ-coordinated water in the major groove of the codon-anticodon mini-helix. Our analysis of nonsense codons enables prediction of potential decoding properties for Ψ-modified sense codons, such as decoding ΨUU potentially as Cys and Tyr. Our results provide molecular rationale for the remarkable dynamics of ribosome decoding and insights on possible reprogramming of the genetic code using mRNA modifications.