RNAs somehow adopt specific functional structures despite the capacity to form alternative nonfunctional structures with similar stabilities. We analyzed RNA assembly during transcription in vitro and in yeast using hairpin ribozyme self-cleavage to assess partitioning between functional ribozyme structures and nonfunctional stem loops. Complementary insertions located upstream of the ribozyme inhibited ribozyme assembly more than downstream insertions during transcription in vitro, consistent with a sequential folding model in which the outcome is determined by the structure that forms first. In contrast, both upstream and downstream insertions strongly inhibited assembly of the same ribozyme variants when expressed as chimeric mRNAs in yeast, indicating that inhibitory stem loops can form even after the entire ribozyme sequence has been transcribed. Evidently, some feature unique to the intracellular environment modulates the influence of transcription polarity and enhances the contribution of thermodynamic stability to RNA folding in vivo.