The simian virus 40 (SV40)-associated small RNA (SAS-RNA), approximately 64 nucleotides, is virally encoded within a region of the viral late (+) DNA strand which encodes no known protein. The SAS-RNA arises in abundance late in SV40 lytic infection. Previous data indicate that the synthesis of the SAS-RNA may be under the control of the normal late viral promoter; i.e., inhibition of transcription from the late promoter results in cessation of SAS-RNA synthesis. The synthesis of SAS-RNA was examined to determine whether the SAS-RNA is the product of cleavage from noncoding regions of nuclear late transcripts or an independent transcription product like 5S RNA, or the adenovirus VA-RNAs. The data described below suggest that SAS-RNA is cleaved from large late transcripts. In vitro transcription of DNA fragments containing the SAS-RNA coding region yielded no SAS-RNA synthesis; this result was supported by DNA sequence analysis, which indicated no promoter-like regions either within or flanking the SAS-RNA coding region. In support of a cleavage mechanism, the SAS-RNA has a 3'-phosphate end, an occurrence which is indicative of nuclease cleavage. In addition, 5'-end labeling of the SAS-RNA was possible only after calf alkaline phosphatase treatment; this indicates that the SAS-RNA is not capped. Hybrid selection analysis was used to demonstrate that separation of the SAS-RNA coding region from the normal late promoter resulted in elimination of SAS-RNA synthesis. This was demonstrated in SV40-transformed cells in which integration of a single copy of SV40 breaks the continuity of the late coding region, so that the SAS-RNA coding region is physically separated from the normal late promoter. The lack of SAS-RNA synthesis indicates that the SAS-RNA coding region cannot function as a primary transcription unit. The same result and conclusion were obtained by using a permissive cell line transformed by SV40 (COS-1 cells); here it was found that the integrated SAS-RNA coding region was not expressed even during a viable lytic infection in which the SAS-RNA could be expressed from the infecting viral genomes. The simplest conclusion drawn from the data is that the SAS-RNA is cleaved from larger late transcripts which initiate at the normal late promoter. This conclusion suggests that many of the small RNAs found in normal eucaryotic cells may be synthesized by specific cleavage rather than by primary transcription. In the course of these studies several small cellular RNAs were detected, due to their specific hybrid selection, by using SV40 DNA. Primary mapping and characterization data of these RNAs are also presented.