We have used a self-cleaving RNA molecule (a "hammerhead") to study the length-dependent folding of RNA produced during transcription by T7 RNA polymerase. Transcript elongation is arrested at defined positions using chain-terminating ribonucleoside triphosphate analogues, 3'-deoxynucleoside triphosphates. When the nascent transcript attains the minimum length required for the "hammerhead" domain of the transcript to fully emerge from the ternary complex, the "hammerhead" structure forms and self-cleaves, producing a truncated product. The experiment yields an RNA sequencing ladder which terminates at the length at which cleavage becomes possible; the sequencing ladder is compared to that generated by using a noncleaving control template. We have shown that 13 nucleotides past the cleavage point must be synthesized before the transcript can self-cleave in the ternary complex whereas RNA freed from the complex by heating can cleave with only 3 or more nucleotides present beyond the cleavage site. The results indicate that the RNA in T7 RNA polymerase is not free of steric interactions in the ternary complex and not available for structure formation until it is at least 10 bases away from the site of polymerization. The results suggest that the maximum possible length of the RNA-DNA hybrid in the ternary complexes is 10. The relevance of the results in comparisons with other RNA polymerases, especially Escherichia coli RNA polymerase, is discussed.