Type VII CRISPR-Cas system, evolutionarily associated with type III systems, utilizes a Cascade complex formed by Cas5 and catalytically inactive Cas7 copies for target RNA binding, but instead incorporates a specialized Cas14 ribonuclease for target cleavage. Here, we report a high-quality cryo-EM structure at the target engagement state with a shortened crRNA and elucidate how the recruited Cas14 captures the target RNA and undergoes target-mediated activation. The signature Cas14 is homologous to eukaryotic CPSF73 and prokaryotic RNase J, comprising two conserved subdomains, M beta L and beta-CASP. Different from canonical type III systems, 5 '-end target RNA, rather than 3 '-end, is bent into the positively charged binding channel formed by the two subdomains to access the conserved catalytic pocket on Cas14. Two special structural features, alpha 1 helix from Cas7 and alpha 10 helix from Cas14, promote the bent target RNA docking into the catalytic pocket of Cas14 nuclease in concert. A dual-functional loop, displaced by the entering target RNA, induces a closed-to-open transition between the two subdomains for nuclease activation. More importantly, the flipped dual-functional loop also maintains the stabilization of incoming target RNA. Altogether, our work provides a more comprehensive understanding of type VII system mechanism, laying a mechanistic foundation for RNA-targeting tool development.