The Mus81-Eme1 complex is a structure-selective endonuclease with a critical role in the resolution of recombination intermediates during DNA repair after interstrand cross-links, replication fork collapse, or double-strand breaks. To explain the molecular basis of 3' flap substrate recognition and cleavage mechanism by Mus81-Eme1, we determined crystal structures of human Mus81-Eme1 bound to various flap DNA substrates. Mus81-Eme1 undergoes gross substrate-induced conformational changes that reveal two key features: (i) a hydrophobic wedge of Mus81 that separates pre- and post-nick duplex DNA and (ii) a "5' end binding pocket" that hosts the 5' nicked end of post-nick DNA. These features are crucial for comprehensive protein-DNA interaction, sharp bending of the 3' flap DNA substrate, and incision strand placement at the active site. While Mus81-Eme1 unexpectedly shares several common features with members of the 5' flap nuclease family, the combined structural, biochemical, and biophysical analyses explain why Mus81-Eme1 preferentially cleaves 3' flap DNA substrates with 5' nicked ends.