Post-transcriptional modifications of ribosomal RNAs (rRNAs) are involved in ribosome biogenesis and fine-tuning of translation. 5-Hydroxycytidine (ho5C), a modification of unknown biogenesis and function, is present at position 2501 of Escherichia coli 23S rRNA. We conducted a genome-wide screen in E. coli to identify genes required for ho5C2501 formation, and found a previously-uncharacterized gene, ydcP (renamed rlhA), iron-sulfur cluster (isc) genes, and a series of genes responsible for prephenate biosynthesis, indicating that iron-sulfur clusters and prephenate are required for ho5C2501 formation. RlhA interacted with precursors of the 50S ribosomal subunit, suggesting that this protein is directly involved in formation of ho5C2501. RlhA belongs to a family of enzymes with an uncharacterized peptidase U32 motif and conserved Cys residues in the C-terminal region. These elements were essential for ho5C2501 formation. We also found that the frequency of ho5C2501 is modulated by environmental iron concentration. Together, our results reveal a novel biosynthetic pathway for RNA hydroxylation and its response to iron.