Naturally occurring nucleoside modifications are an intrinsic feature of transfer RNA (tRNA), and have been implicated in the efficiency, as well as accuracy-of codon recognition. The structural and functional contributions of the modified nucleosides in the yeast tRNA(Phe) anticodon domain were examined. Modified nucleosides were site-selectively incorporated, individually and in combinations, into the heptadecamer anticodon stem and loop domain, (ASL(Phe)). The stem modification, 5-methylcytidine, improved RNA thermal stability, but had a deleterious effect on ribosomal binding. In contrast, the loop modification, 1-methylguanosine, enhanced ribosome binding, but dramatically decreased thermal stability. With multiple modifications present, the global ASL stability was mostly the result of the individual contributions to the stem plus that to the loop. The effect of modification on ribosomal binding was not predictable from thermodynamic contributions or location in the stem or loop. With 4/5 modifications in the ASL, ribosomal binding was comparable to that of the unmodified ASL. Therefore, modifications of the yeast tRNA(Phe) anticodon domain may have more to do with accuracy of codon reading than with affinity of this tRNA for the ribosomal P-site. In addition, we have used the approach of site-selective incorporation of specific nucleoside modifications to identify 2'O-methylation of guanosine at wobble position 34 (Gm34) as being responsible for the characteristically enhanced chemical reactivity of C1400 in Escherichia coli 16S rRNA upon ribosomal footprinting of yeast tRNA(Phe). Thus, effective ribosome binding of tRNA(Phe) is a combination of anticodon stem stability and the correct architecture and dynamics of the anticodon loop. Correct tRNA binding to the ribosomal P-site probably includes interaction of Gm34 with 16S rRNA C1400.