Small nucleolar RNA (snoRNA) are conserved and essential non-coding RNA that are transcribed by RNA Polymerase II (Pol II). Two snoRNA classes, formerly distinguished by their structure and ribonucleoprotein composition, act as guide RNA to target RNA such as ribosomal RNA, and thereby introduce specific modifications. We have studied the 5ʹend processing of individually transcribed snoRNA in S. cerevisiae to define their role in snoRNA biogenesis and functionality. Here we show that pre-snoRNA processing by the endonuclease Rnt1 occurs co-transcriptionally with removal of the m⁷G cap facilitating the formation of box C/D snoRNA. Failure of this process causes aberrant 3ʹend processing and mislocalization of snoRNA to the cytoplasm. Consequently, Rnt1-dependent 5ʹend processing of box C/D snoRNA is critical for snoRNA-dependent methylation of ribosomal RNA. Our results reveal that the 5ʹend processing of box C/D snoRNA defines their distinct pathway of maturation.