RNA editing in kinetoplast mitochondrial transcripts involves the insertion and/or deletion of uridine residues and is directed by guide RNAs (gRNAs). It is thought to occur through a chimeric intermediate in which the 3' oligo(U) tail of the gRNA is covalently joined to the 3' portion of the mRNA at the site being edited. Chimeras have been proposed to be formed by a transesterification reaction but could also be formed by the known mitochondrial site-specific nuclease and RNA ligase. To distinguish between these models, we studied chimera formation in vitro directed by a trypanosome mitochondrial extract. This reaction was found to occur in two steps. First, the mRNA is cleaved in the 3' portion of the editing domain, and then the 3' fragment derived from this cleavage is ligated to the gRNA. The isolated mRNA 3' cleavage product is a more efficient substrate for chimera formation than is the intact mRNA, inconsistent with a transesterification mechanism but supporting a nuclease-ligase mechanism. Also, when normal mRNA cleavage is inhibited by the presence of a phosphorothioate, normal chimera formation no longer occurs. Rather, this phosphorothioate induces both cleavage and chimera formation at a novel site within the editing domain. Finally, levels of chimera-forming activity correlate with levels of mitochondrial RNA ligase activity when reactions are conducted under conditions which inhibit the ligase, including the lack of ATP containing a cleavable alpha-beta bond. These data show that chimera formation in the mitochondrial extract occurs by a nuclease-ligase mechanism rather than by transesterification.