Satellite bacteriophage P4 immunity is encoded within a short DNA region 357 bp long containing the promoter PLE and 275 bp downstream. PLE is active both in the early post-infection phase, when genes necessary for P4 lytic cycle are transcribed from this promoter, and in the lysogenic condition, when expression of the above genes is prevented by prophage immunity. In order to understand how P4 immunity is elicited, we have characterized the transcription pattern during the establishment and the maintenance of the satellite phage P4 lysogenic condition. We found that prophage transcription starting at PLE ends prematurely and the transcripts do not extend beyond 300-400 nucleotides downstream of PLE. Thus P4 immunity acts by causing premature transcription termination rather than by repressing transcription initiation. The P4 immunity region is transcribed in the prophage, but it does not seem to be translated; this region contains two elements (seqA and seqB) of a palindromic sequence. In addition to transcripts about 300 nucleotides long, P4 prophage produces a family of shorter transcripts, about 80 nucleotides long, containing seqA or seqB. Evidence is presented suggesting that SeqB RNA is the trans-acting immunity factor, and that interaction of SeqB RNA with the complementary nascent RNA containing seqA may be involved in bringing about premature transcription termination.