Numerous natural and artificial ribozymes have been shown to facilitate reactions that invert stereochemistry. Here, we demonstrate that an RNA-capping ribozyme retains stereochemistry at a phosphorus reaction center. The ribozyme synthesizes a broad range of 5'-5' RNA caps by exchanging phosphate groups around the alpha-phosphate found at the 5' terminus of the ribozyme. A ribozyme prepared with an Rp adenosine(5')alpha-thiotetraphosphate cap was found to exchange this cap for an Rp 4-thiouridine(5')alpha-thiotetraphosphate cap when incubated with 4-thiouridine triphosphate. The same Rp capped construct, when incubated with [gamma-(32)P]-ATP, exchanged the unlabeled ATP for a radiolabeled one while maintaining the same stereoconfiguration. In contrast, ribozymes prepared with an Sp cap failed to react even in the presence of thiophilic metal ions such as manganese. The kinetics of capping was also unusual as compared to inverting ribozymes. When the ribozyme was prepared with a triphosphate, capping was found to follow Michaelis-Menten-type kinetics even though the rate of pyrophosphate release was completely independent of nucleotide substrate concentration. Interestingly, the rate of capping and hydrolysis, when summed, was found to be indistinguishable from the rate of pyrophosphate release, indicating that an early rate-limiting step precedes both capping and hydrolysis. Together the retention of stereochemistry and kinetics imply that capping utilizes two inverting chemical steps that are separated by the transient formation of a rate-limiting covalent intermediate. As all protein enzymes that mediate similar capping reactions utilize a covalent intermediate, chemical necessity may have strongly guided the evolution of both protein and RNA-capping catalysts.