Bacteriophage T7 lysozyme is known to inhibit transcription by T7 RNA polymerase. Lysozyme present before initiation inhibited the synthesis of long RNA chains but did not inhibit elongation when added shortly after chains were initiated. A combination of gel-shift and transcription assays showed that lysozyme and polymerase form a 1:1 complex that binds promoter DNA and makes abortive transcripts, indicating that lysozyme has little effect on the early steps of transcription. Extension of stalled transcription complexes suggested that a transcribing polymerase becomes resistant to lysozyme inhibition after synthesis of an RNA chain as short as 15 nucleotides. It seems likely that bound lysozyme prevents an initiating polymerase from converting to an elongation complex. This conversion is thought to involve both a conformational change in the polymerase and the binding of nascent RNA. Gel-shift experiments indicated that lysozyme does not interfere with the binding of RNA, so it probably prevents a necessary conformational change in the polymerase. Lysozyme also increased pausing or termination at two sites in lambda DNA and at a site near the right end of the concatemer junction of T7 DNA. If pausing at these sites involves a reversal from the elongation to the initiation conformation, lysozyme may increase pausing or termination by "locking in" the initiation conformation. The arrest of transcription complexes near promoters and near the right end of the concatemer junction almost certainly must relate to lysozyme's ability to stimulate replication, maturation and packaging of T7 DNA during T7 infection.