Stem bulge RNAs (sbRNAs) are a family of small non-coding stem-loop RNAs present in Caenorhabditis elegans and other nematodes, the function of which is unknown. Here, we report the first functional characterisation of nematode sbRNAs. We demonstrate that sbRNAs from a range of nematode species are able to reconstitute the initiation of chromosomal DNA replication in the presence of replication proteins in vitro, and that conserved nucleotide sequence motifs are essential for this function. By functionally inactivating sbRNAs with antisense morpholino oligonucleotides, we show that sbRNAs are required for S phase progression, early embryonic development and the viability of C. elegans in vivo. Thus, we demonstrate a new and essential role for sbRNAs during the early development of C. elegans. sbRNAs show limited nucleotide sequence similarity to vertebrate Y RNAs, which are also essential for the initiation of DNA replication. Our results therefore establish that the essential function of small non-coding stem-loop RNAs during DNA replication extends beyond vertebrates.