The Caenorhabditis elegans heterochronic gene lin-14 generates a temporal gradient of the LIN-14 proteins to control stage-specific patterns of cell lineage during development. Down-regulation of LIN-14 is mediated by the lin-14 3' untranslated region (UTR), which bears seven sites that are complementary to the regulatory lin-4 RNA. Here we report molecular and genetic evidence that RNA duplexes between the lin-4 and lin-14 RNAs form in vivo and are necessary for LIN-14 temporal gradient generation. lin-4 RNA binds in vitro to a lin-14 mRNA bearing the seven lin-4 complementary sites but not to a lin-14 mRNA bearing point mutations in these sites. In vivo, the lin-4 complementary regions are necessary for lin-14 3' UTR-mediated temporal gradient formation. Based on lin-14 3' UTR sequence comparisons between C. elegans and C. briggsae, four of the seven lin-4/lin-14 RNA duplexes are predicted to bulge a lin-4 C residue, and three sites are predicted to form nonbulged RNA duplexes. Reporter genes bearing multimerized bulged C lin-4 binding sites show almost wild-type temporal gradient formation, whereas those bearing multimerized nonbulged lin-4 binding sites do not form a temporal gradient. Paradoxically, lin-4 RNA binds in vitro to nonbulged lin-14 RNA more avidly than to the bulged lin-14 RNA. This suggests that a specific secondary structure of lin-4/lin-14 RNA duplex that may be recognized by an accessory protein, rather than an RNA duplex per se, is required in vivo for the generation of the LIN-14 temporal gradient.