The role of modified nucleosides in tRNA structure and ion binding has been investigated with chemically synthesized RNAs corresponding to the yeast tRNA(Phe) anticodon stem and loop tRNA(AC)Phe). Incorporation of d(m5C) at position 14 of the stem of tRNA(AC)Phe-d(m5C-14), CCAGACUGAA-GAU-d(m5C-14)-UGG, analogous to m5C40 in native tRNA(Phe), introduced a strong Mg2+ binding at a site distant from the m5C. A Mg2+-induced structural transition, detected by circular dichroism spectroscopy, was similar to that observed for the DNA analog of tRNA(AC)Phe (Guenther et al., 1992; Dao et al., 1992). In contrast, Mg2+ had little effect on unmodified tRNA(AC)Phe-rC-14 or tRNA(AC)Phe-d(C-14). Modified tRNA(AC)Phe-d(m5C-14) bound two Mg2+ ions, and the binding was cooperative. The dissociation constant of the two Mg2+ ions from tRNA(AC)Phe-d(m5C-14), 2.5 X 10(-9) M2, is the result of an RNA structure significantly stabilized by Mg2+ binding, DELTAG = -11.7 kcal/mol. The tRNA(AC)Phe-d(m5C-14) structure, investigated by H-1 NMR, had a double stranded stem of five base pairs and two additional base pairs across what was a seven membered loop in the unmodified tRNA(AC)Phe. Methylation of cytidine in the yeast tRNA(AC)Phe enables the molecule to form more than one conformation through a process regulated by Mg2+ concentration. Thus, the simplest of posttranscriptional modifications of tRNA, a methylation, is involved in a somewhat distant, internal-site Mg2+ binding and stabilization of tRNA structure, especially that of the anticodon stem and loop.