Insertional RNA editing has been observed and characterized in mitochondria of myxomycetes. The single subunit mitochondrial RNA polymerase adds nontemplated nucleotides co-transcriptionally to produce functional tRNA, rRNA and mRNAs with full genetic information. Addition of nontemplated nucleotides to the 3' ends of RNAs have been observed in polymerases related to the mitochondrial RNA polymerase. This activity has been observed with T7 RNA polymerase (T7 RNAP), the well characterized prototype of the single subunit polymerases, as a nonspecific addition of nucleotides to the 3' end of T7 RNAP transcripts in vitro. Here we show that this novel activity is an editing activity that can add specific ribonucleotides to 3' ends of RNA or DNA when oligonucleotides, able to form intramolecular or intermolecular hairpin loops with recessed 3' ends, are added to T7 RNA polymerase in the presence of at least one ribonucleotide triphosphate. Specific ribonucleotides are added to the recessed 3' ends through Watson-Crick base pairing with the non-base paired nucleotide adjacent to the 3' end. Optimization of this activity is obtained through alteration of the lengths of the 5'-extension, hairpin loop, and hairpin duplex. These properties define a T7 RNAP activity different from either transcriptional elongation or initiation.