The modes of binding of pGp,ApG,CpG and UpG to the enzyme ribonuclease T1 were determined by computer modeling. Essentially two binding modes are possible for all the four ligands--one with the 3'-phosphate group occupying the phosphate binding site (substrate mode of binding) and the second with the 5'-phosphate group occupying the phosphate binding site (inhibitor mode of binding). The latter binding mode is energetically favoured over the former and in this mode the base (G) and the 5'-phosphate moieties occupy the same sites on the enzyme as 5'-GMP when bound to RNase T1. The ribose moiety of pGp adopts a C3'-endo pucker form when bound to the enzyme and the glycosyl torsion angle will be in -syn range as 5'-GMP in the RNase T1-5'-GMP complex. Based on these results, a mechanism for the release of the product subsequent to cleavage of the substrate by the enzyme has been proposed. The amino acid residues Asn98 and Tyr45 are shown to form the subsites for the phosphate and the base respectively on the 5'-side of the guanine occupying the primary binding site. These studies also provide a stereochemical explanation for the specificity of the 1N subsite for adenine.