A fundamental catalytic principle for protein enzymes in the use of binding interactions away from the site of chemical transformation for catalysis. We have compared the binding and reactivity of a series of oligonucleotide substrates and products of the Tetrahymena ribozyme, which catalyzes a site-specific phosphodiester cleavage reaction: CCCUCUpA+G<-->CCCUCU-OH+GpA. The results suggest that this RNA enzyme, like protein enzymes, can utilize binding interactions to achieve substantial catalysis via entropic fixation and substrate destabilization. The stronger binding of the all-ribose oligonucleotide product compared to an analog with a terminal 3' deoxyribose residue gives an effective concentration of 2200 M for the 3' hydroxyl group, a value approaching those obtained with protein enzymes and suggesting the presence of a structurally well defined active site capable of precise positioning. The stabilization from tertiary binding interactions is 40-fold less for the oligonucleotide substrate than the oligonucleotide product, despite the presence of the reactive phosphoryl group in the substrate. This destabilization is accounted for by a model in which tertiary interactions away from the site of bond cleavage position the electron-deficient 3' bridging phosphoryl oxygen of the oligonucleotide substrate next to an electropositive Mg ion. As the phosphodiester bond breaks and this 3' oxygen atom develops a negative charge in the transition state, the weak interaction of the substrate with Mg2+ becomes strong. These strategies of "substrate destabilization" and "transition state stabilization" provide estimated rate enhancements of approximately 280- and approximately 60-fold, respectively. Analogous substrate destabilization by a metal ion or hydrogen bond donor may be used more generally by RNA and protein enzymes catalyzing reactions of phosphate esters.