In the trans excision-splicing reaction, a Pneumocystis carinii group I intron-derived ribozyme binds an RNA substrate, excises a specific internal segment, and ligates the flanking regions back together. This reaction can occur both in vitro and in vivo. In this report, the first of the two reaction steps was analyzed to distinguish between two reaction mechanisms: ribozyme-mediated hydrolysis and nucleotide-dependent intramolecular transesterification. We found that the 3'-terminal nucleotide of the ribozyme is the first-reaction step nucleophile. In addition, the 3'-half of the RNA substrate becomes covalently attached to the 3'-terminal nucleotide of the ribozyme during the reaction, both in vitro and in vivo. Results also show that the identity of the 3'-terminal nucleotide influences the rate of the intramolecular transesterification reaction, with guanosine being more effective than adenosine. Finally, expected products of the hydrolysis mechanism do not form during the reaction. These results are consistent with only the intramolecular transesterification mechanism. Unexpectedly, we also found that ribozyme constructs become truncated in vivo, probably through intramolecular 3'-hydrolysis (self-activation), to create functional 3'-terminal nucleotides.