A group I intron-derived ribozyme from Pneumocystis carinii has been previously shown to bind an exogenous RNA substrate, splice out an internal segment, and then ligate the two ends back together (the trans excision-splicing reaction). We demonstrate that this same ribozyme can perform a trans insertion-splicing (TIS) reaction, where the ribozyme binds two exogenous RNA substrates and inserts one directly into the other. Reactions were optimized for both yield and rate, with optimum reactions carried out in 10 mM MgCl(2) for 2 h. Reaction products are stable, with no visible loss at extended times. The ribozyme recognizes the two substrates primarily through base pairing and requires an omegaG on the ribozyme and an omegaG on the sequence being inserted. We give evidence that the reaction mechanism is not the reverse of the trans excision-splicing reaction, but is composed of three steps, with intermediates attached to the ribozyme. Surprisingly, the internal guide sequence of the ribozyme is utilized to sequentially bind both substrates, forming independent P1 helices. This is an indication that ribozymes with essentially the native intron sequence can catalyze reactions significantly more dynamic and complex than self-splicing. The implications of group I intron-derived ribozymes being able to catalyze this unique reaction, and via this mechanism, are discussed.