In the Ty retrotransposon of Saccharomyces cerevisiae, as in most retroelements, the polyadenylation site of the 5' long terminal repeat (LTR) is ignored and the one in the 3' LTR is efficiently used. We examine here the contribution to this poly(A) site selection of the region termed 'U3', corresponding to the upstream non-transcribed portion of the 5' LTR. Using an established assay in vitro, we find that 3' processing is accurate and efficient with an RNA substrate corresponding to most of the LTR, whereas none is detectable with a shorter transcript lacking the U3 region, thus explaining why the 5' poly(A) site is ignored in genomic Ty mRNA. When HIS4 coding RNA, representing 'non-specific' sequence, replaces the U3 region, the Ty polyadenylation site is activated to 50% of the wild-type level. Within one specific region (TS1) in U3, 90-95 nt upstream of the poly(A) site, the change of UAGUAU to UCGCAU reduces processing efficiency by half, to the non-specific level provided by other sequences or by a deletion of the TS1 region. Another region (TS2) near the poly(A) site appears to be independently responsible for the remaining half of the processing activity. Alteration of both TS1 and TS2 eliminates processing entirely. In competition assays, excess unlabeled U3, but not its mutated counterparts, reduces the processing of radiolabeled Ty mRNA, suggesting the involvement of some sequence-specific titratable factor(s) in the whole cell extract for U3-specific activation.(ABSTRACT TRUNCATED AT 250 WORDS)