The catalytic properties of purified RNase D were examined. The enzyme requires a divalent cation for activity, and this requirement can be satisfied by Mg2+, MN2+, or Co2+. RNase D is most active at pH 9.1-9.5, but this optimum may reflect an effect on the substrate as well as the enzyme. A variety of RNAs were tested as substrates for RNase D. Alteration of the 3'-terminal base has no effect on the rate of hydrolysis, whereas modification of the 3'-terminal sugar has a major effect. tRNA terminating with a 3'-phosphate is completely inactive as a substrate. The rate of hydrolysis of intact tRNA is very slow compared to tRNAs containing extra residues or compared to tRNAs from which part of the -C-C-A sequence has been removed. Oxidation of the terminal sugar, reduction of the dialdehyde with borohydride, or removal of the terminal AMP from intact tRNa increase the activity of the substrate. Addition of a second -C-C-A sequence gives an active substrate indicating that the relative resistance of intact tRNA to RNase D hydrolysis is not due to the sequence per se but to the structural environment of the 3'-terminus. Studies of the mode of action of RNase D indicate that it is an exonuclease which initiates hydrolysis at the 3'-terminus and removes 5'-mononucleotides in a random fashion. The requirements of RNase D for interaction with nucleic acids and for hydrolysis of various RNAs and the relation of these properties to its possible role as a processing nuclease is discussed.