The conserved pre-mRNA retention and splicing (RES) complex, which in yeast consists of Bud13p, Snu17p and Pml1p, is thought to promote nuclear retention of unspliced pre-mRNAs and enhance splicing of a subset of transcripts. Here, we find that the absence of Bud13p or Snu17p causes greatly reduced levels of the modified nucleoside N(4)-acetylcytidine (ac(4)C) in tRNA and that a lack of Pml1p reduces ac(4)C levels at elevated temperatures. The ac(4)C nucleoside is normally found at position 12 in the tRNA species specific for serine and leucine. We show that the tRNA modification defect in RES-deficient cells is attributable to inefficient splicing of TAN1 pre-mRNA and the effects of reduced Tan1p levels on formation of ac(4)C. Analyses of cis-acting elements in TAN1 pre-mRNA showed that the intron sequence between the 5' splice site and branchpoint is necessary and sufficient to mediate RES dependency. We also show that in RES-deficient cells, the TAN1 pre-mRNA is targeted for degradation by the cytoplasmic nonsense-mediated mRNA decay pathway, indicating that poor nuclear retention may contribute to the tRNA modification defect. Our results demonstrate that TAN1 pre-mRNA processing has an unprecedented requirement for RES factors and that the complex controls the formation of ac(4)C in tRNA.