Recent studies of transcription have revealed a level of complexity not previously appreciated even a few years ago, both in the intricate use of post-initiation control and the mass production of rapidly degraded transcripts. Dissection of these pathways requires strategies for precisely following transcripts as they are being produced. Here we present an approach (native elongating transcript sequencing, NET-seq), based on deep sequencing of 3' ends of nascent transcripts associated with RNA polymerase, to monitor transcription at nucleotide resolution. Application of NET-seq in Saccharomyces cerevisiae reveals that although promoters are generally capable of divergent transcription, the Rpd3S deacetylation complex enforces strong directionality to most promoters by suppressing antisense transcript initiation. Our studies also reveal pervasive polymerase pausing and backtracking throughout the body of transcripts. Average pause density shows prominent peaks at each of the first four nucleosomes, with the peak location occurring in good agreement with in vitro biophysical measurements. Thus, nucleosome-induced pausing represents a major barrier to transcriptional elongation in vivo.