Protein B23 is an abundant nucleolar protein and a putative ribosome assembly factor which possesses an intrinsic ribonuclease activity. In the current work, the effects of RNA sequence and secondary structure on the cleavage preference by protein B23 were studied. Protein B23 ribonuclease preferentially cleaved the single-stranded homopolymers poly(A), poly(U) and poly(C). However, double-stranded co-polymers and poly(G) were resistant to cleavage. No base specificity was observed with an oligoribonucleotide substrate. The action of protein B23 ribonuclease on different regions of pre-rRNA was studied using transcripts synthesized in vitro from cloned rDNA segments. Although no specific cleavages were detected in transcripts containing sequences from the 5' external transcribed spacer or the first internal transcribed spacer, the enzyme preferentially cleaved the second internal transcribed spacer (ITS2) approximately 250 nt downstream from the 3'-end of 5.8S rRNA. Preferential cleavage was retained when the transcript was extended by 100 nt at the 3'-end, but abolished in a transcript lacking this cleavage site. Furthermore, this site was not susceptible to cleavage by RNase A or RNase T1. These results, in conjunction with the sub-nucleolar localization of the protein with elements of the processing machinery, suggest that the protein B23 endoribonuclease could play a role in pre-rRNA processing in ITS2.