Bacteriophage T7 lysozyme binds to T7 RNA polymerase and inhibits transcription initiation and the transition from initiation to elongation. We have investigated each step of transcription initiation to determine where T7 lysozyme has the most effect. Stopped flow and equilibrium DNA binding studies indicate that T7 lysozyme does not inhibit the formation of the preinitiation open complex (open complex in the absence of initiating nucleotide). T7 lysozyme, however, does prevent the formation of a fully open initiation complex (open complex in the presence of the initiating nucleotide). This is consistent with the results that in the presence of T7 lysozyme the rate of G ladder RNA synthesis is about 5-fold slower and the GTP Kd is about 2-fold higher, but T7 lysozyme does not inhibit the initial rate of RNA synthesis with a premelted bulge-6 promoter (bubble from -4 to +2). Neither the RNA synthesis rate nor the extent of promoter opening is restored by increasing the initiating nucleotide concentration, indicating that T7 lysozyme represses transcription by interfering with the formation of a stable and a fully open initiation bubble or by altering the structure of the DNA in the initiation complex. As a consequence of the unstable initiation bubble and/or the inhibition of the conformational changes in the N-terminal domain of T7 RNAP, T7 lysozyme causes an increased production of abortive products from 2- to 5-mer that delays the transition from the initiation to the elongation phase.