Eukaryotic rRNAs (with the exception of 5S rRNA) are synthesized from a contiguous pre-rRNA precursor by a complex series of processing reactions. Final maturation of yeast 5.8S rRNA involves processing of a 3'-extended, 7S precursor that contains approximately 140 nucleotides of the internal transcribed spacer 2 (ITS2) region. In yeast strains carrying the temperature-sensitive (ts) rrp4-1 mutation, 5.8S rRNA species were observed with 3' extensions of variable length extending up to the 3' end of the 7S pre-rRNA. These 3'-extended 5.8S rRNA species were observed at low levels in rrp4-1 strains under conditions permissive for growth and increased in abundance upon transfer to the nonpermissive temperature. The RRP4 gene was cloned by complementation of the ts growth phenotype of rrp4-1 strains. RRP4 encodes an essential protein of 39-kD predicted molecular mass. Immunoprecipitated Rrp4p exhibited a 3'-->5' exoribonuclease activity in vitro that required RNA with a 3'-terminal hydroxyl group and released nucleoside 5' monophosphates. We conclude that the 7S pre-rRNA is processed to 5.8S rRNA by a 3'-->5' exonuclease activity involving Rrp4p. Homologs of Rrp4p are found in both humans and fission yeast Schizosaccharomyces pombe (43% and 52% identity, respectively), suggesting that the mechanism of 5.8S rRNA 3' end formation has been conserved throughout eukaryotes.