Sequential formation of RNA interactions during transcription can bias the folding pathway and ultimately determine the functional state of a transcript. The kinetics of cotranscriptional folding of the Tetrahymena L-21 ribozyme was compared with refolding of full-length transcripts under the same conditions. Sequential folding after transcription by phage T7 or Escherichia coli polymerase is only twice as fast as refolding, and the yield of native RNA is the same. By contrast, a greater fraction of circularly permuted variants folded correctly at early times during transcription than during refolding. Hybridization of complementary oligonucleotides suggests that cotranscriptional folding enables a permuted RNA beginning at G303 to escape non-native interactions in P3 and P9. We propose that base pairing of upstream sequences during transcription elongation favors branched secondary structures that increase the probability of forming the native ribozyme structure.