The optional Escherichia coli prr locus restricts phage T4 mutants lacking polynucleotide kinase or RNA ligase. Underlying this restriction is the specific manifestation of the T4-induced anticodon nuclease, an enzyme which triggers the cleavage-ligation of the host tRNALys. We report here the molecular cloning, nucleotide sequence and mutational analysis of prr-associated DNA. The results indicate that prr encodes a latent form of anticodon nuclease consisting of a core enzyme and cognate masking agents. They suggest that the T4-encoded factors of anticodon nuclease counteract the prr-encoded masking agents, thus activating the latent enzyme. The encoding of a tRNA cleavage-ligation pathway by two separate genetic systems which cohabitate E. coli may provide a clue to the evolution of RNA splicing mechanisms mediated by proteins.