Assembly of the Mu transpososome is dependent on specific binding sites for the MuA transposase near the ends of the phage genome. MuA also contacts terminal nucleotides but only upon transpososome assembly, and base-specific recognition of the terminal nucleotides is critical for assembly. We show that Mu ends lacking the terminal 5 bp can form transpososomes, while longer DNA substrates with mutated terminal nucleotides cannot. The impact of the mutations can be suppressed by base mismatches near the end of Mu. Deletion of the flanking strands or mutation of the terminal nucleotides has differential effects on the cleavage and strand transfer reactions. These results show that the terminal nucleotides control the assembly and activation of transpososomes by influencing conformational changes around the active site.