I am redoing my bathroom,(It all began with a broken piece inside the toilet tank).I have
Taken up the tile floor, the paper backing, and sanded the floor.I was going to use acyrlic modified thinset for the new tile to adhere to the old plywood. Upon further study, the plywood flooring near the bathtub has rotted over the years. What is my best way to go from here? If I must put down new flooring underlayment, is there an alternative to using plywood? I am concerned that the toilet flange will be to far below foor level.

Typically,sub flooring is 1/8 inch,this isn't enough to cause concern with the flange.

Thicker sub flooring will require a flange extension(readily available in all hardware sections/plumbing supply stores)But perhaps you can get by with just a wax ring with built in flange.

KBC

You'll need to install concrete board or durock over the plywood floor, this may bring the floor up higher than the flange, if so, you'll need to cut the 4" pipe under the house, and place a coupling to extend the flange up higher, youll also need to buy a new flange for the toilet, now keep in mind that the plywood floor need to be under the flange so you can run some screws down through it to fasten it down, so dont cut it around the flange, cut the plywood and concrete board around the 4" pipe the flange will now set down on top.

Before you set the flange install the tile floor , cutting the floor around the 4" pipe as well. After this is set up for a day, install the flange , remember to use pvc glue when you set it, use 2 1/2 screws to fasten the flange down, good luck