A strong transcriptional pause delays human RNA polymerase II three nt after the last potentially paired base in HIV-1 TAR, the RNA structure that binds the transactivator protein Tat. We report here that the HIV-1 pause depends in part on an alternative RNA structure (the HIV-1 pause hairpin) that competes with formation of TAR. By probing the nascent RNA structure in halted transcription complexes, we found that the transcript folds as the pause hairpin before and at the pause, and rearranges to TAR concurrent with or just after escape from the pause. The pause signal triggers a 2 nt reverse translocation by RNA polymerase that may block the active site and be counteracted by formation of TAR. Thus, the HIV-1 pause site modulates nascent RNA rearrangement from a structure that favors pausing to one that both recruits Tat and promotes escape from the pause.