RNA-templated RNA replication is essential for viral or viroid infection, as well as for regulation of cellular gene expression. Specific RNA motifs likely regulate various aspects of this replication. Viroids of the Pospiviroidae family, as represented by the Potato spindle tuber viroid (PSTVd), replicate in the nucleus by utilizing DNA-dependent RNA polymerase II. We investigated the role of the loop E (sarcin/ricin) motif of the PSTVd genomic RNA in replication. A tertiary-structural model of this motif, inferred by comparative sequence analysis and comparison with nuclear magnetic resonance and X-ray crystal structures of loop E motifs in other RNAs, is presented in which core non-Watson-Crick base pairs are precisely specified. Isostericity matrix analysis of these base pairs showed that the model accounts for the reported natural sequence variations and viable experimental mutations in loop E motifs of PSTVd and other viroids. Furthermore, isostericity matrix analysis allowed us to design disruptive, as well as compensatory, mutations of PSTVd loop E. Functional analyses of such mutants by in vitro and in vivo experiments demonstrated that loop E structural integrity is crucial for replication, specifically during transcription. Our results suggest that the PSTVd loop E motif exists and functions in vivo and provide loss-of-function genetic evidence for the essential role of a viroid RNA three-dimensional motif in rolling-circle replication. The use of isostericity matrix analysis of non-Watson-Crick base pairing to rationalize mutagenesis of tertiary motifs and systematic in vitro and in vivo functional assays of mutants offers a novel, comprehensive approach to elucidate the tertiary-structure-function relationships for RNA motifs of general biological significance.