The ribonuclease H (RNase H) domain of retroviral reverse transcriptase (RT) plays a critical role in the life cycle by degrading the RNA strands of DNA/RNA hybrids. In addition, RNase H activity is required to precisely remove the RNA primers from nascent (-) and (+) strand DNA. We report here three crystal structures of the RNase H domain of xenotropic murine leukemia virus-related virus (XMRV) RT, namely (i) the previously identified construct from which helix C was deleted, (ii) the intact domain, and (iii) the intact domain complexed with an active site α-hydroxytropolone inhibitor. Enzymatic assays showed that the intact RNase H domain retained catalytic activity, whereas the variant lacking helix C was only marginally active, corroborating the importance of this helix for enzymatic activity. Modeling of the enzyme-substrate complex elucidated the essential role of helix C in binding a DNA/RNA hybrid and its likely mode of recognition. The crystal structure of the RNase H domain complexed with β-thujaplicinol clearly showed that coordination by two divalent cations mediates recognition of the inhibitor.