Many RNA-mediated reactions in transcription, translation, RNA processing, and transport require assembly of RNA complexes, yet assembly pathways remain poorly understood. Assembly mechanisms can be difficult to assess in a biological context because many components interact in complex pathways and individual steps are difficult to isolate experimentally. Our previous studies of self-cleaving hairpin ribozymes showed that kinetic and equilibrium parameters measured in yeast agree well with parameters measured in vitro under ionic conditions that mimic the intracellular environment. We now report studies of intermolecular reactions with ribozyme and target sequences expressed in yeast as separate chimeric U3 snoRNAs. In this system, intracellular cleavage rates reflect the kinetics of ribozyme-substrate complex formation through annealing of base-paired helices. Second-order rate constants increased with increasing helix length for in vitro reactions with 2 mM MgCl(2) and 150 mM NaCl and in vivo but not in reactions with 10 mM MgCl(2). Thus, efficient RNA complex formation required a larger extent of complementarity in vivo than in vitro under conditions with high concentrations of divalent cations. The most efficient intracellular cleavage reactions exhibited second-order rate constants that were 15- to 30-fold below rate constants for cleavage of oligonucleotides in vitro. Careful analysis of structural features that influence cleavage efficiency points to substrate binding as the rate-determining step in the intracellular cleavage pathway. Second-order rate constants for intermolecular cleavage agree well with diffusion coefficients reported for U3 snoRNPs in vivo suggesting that complex formation between chimeric ribozyme and substrate snoRNPs in yeast nuclei is diffusion limited.