Archaeosine is a novel derivative of 7-deazaguanosine found in transfer RNAs of most organisms exclusively in the archaeal phylogenetic lineage and is present in the D-loop at position 15. We show that this modification is formed by a posttranscriptional base replacement reaction, catalyzed by a new tRNA-guanine transglycosylase (TGT), which has been isolated from Haloferax volcanii and purified nearly to homogeneity. The molecular weight of the enzyme was estimated to be 78 kDa by SDS-gel electrophoresis. The enzyme can insert free 7-cyano-7-deazaguanine (preQ0 base) in vitro at position 15 of an H. volcanii tRNA T7 transcript, replacing the guanine originally located at that position without breakage of the phosphodiester backbone. Since archaeosine base and 7-aminomethyl-7-deazaguanine (preQ1 base) were not incorporated into tRNA by this enzyme, preQ0 base appears to be the actual substrate for the TGT of H. volcanii, a conclusion supported by characterization of preQ0 base in an acid-soluble extract of H. volcanii cells. Thus, this novel TGT in H. volcanii is a key enzyme for the biosynthetic pathway leading to archaeosine in archaeal tRNAs.