The binding of T7 lysozyme to T7 RNAP increases the apparent Km for NTP during initiation (formation of the first phosphodiester bond). It also increases the dissociation constant and dissociation rate of product dinucleotide from the polymerase. Higher NTP concentrations are required for maximal rates of productive initiation from T7 class II versus class III promoters, though individual promoters display distinct responses to changes in NTP concentrations. The greater degree of repression of class II versus class III promoters by T7 lysozyme, which appears to be important for the switch to class III gene expression during the phage life cycle, might therefore be a consequence of: (1) T7 lysozyme generally reducing the affinity of the polymerase for NTPs and increasing the rate of release of transcripts, and (2), intrinsically higher NTP concentration requirements for productive initiation from class II promoters. T7 lysozyme is also found to inhibit the addition of untemplated bases to the transcript which can occur when the elongation complex reaches the end of a template, and its effects are qualitatively similar to those reported for mutations in the extreme C terminus of T7 RNAP. Together with the locations of polymerase mutations which cause resistance or hypersensitivity to T7 lysozyme, these observations suggest that the structural mechanism of lysozyme action might include conformational changes in the C-terminal loop (aa. approximately 820-883) of T7 RNAP.