We have previously shown the presence of multiple small leader-containing RNA species in mouse hepatitis virus (MHV)-infected cells. In this paper, we have analyzed the origin, structure, and mechanism of synthesis of these small RNAs. Using cDNA probes specific for leader RNA and genes A, D, and F, we demonstrate that subsets of these small RNAs were derived from the various viral genes. These subsets have discrete and reproducible sizes, varying with the gene from which they are derived. The size of each subset correlates with regions of secondary structure, whose free energy ranges from -1.6 to -77.1 kcal/mol, in each of the mRNAs examined. In addition, identical subsets were detected on the replicative intermediate (RI) RNA, suggesting that they represent functional transcriptional intermediates. The biological significance of these small RNAs is further supported by the detection of leader-containing RNAs of 47, 50, and 57 nucleotides in length, which correspond to the crossover sites in two MHV recombinant viruses. These data, coupled with the high frequency of RNA recombination during MHV infection, suggest that the viral polymerase may pause in or around regions of secondary structure, thereby generating pools of free leader-containing RNA intermediates which can reassociate with the template, acting as primers for the synthesis of full-length or recombinant RNAs. These data suggest that MHV transcription uses a discontinuous and nonprocessive mechanism in which RNA polymerase allows the partial RNA products to be dissociated from the template temporarily during the process of transcription.