Inverted repeat (IR) sequences are found at the 3' ends of most chloroplast protein coding regions, and we have previously shown that the 3'IR is important for accumulation of atpB mRNA in Chlamydomonas reinhardtii (D. B. Stern, E.R. Radwanski, and K. L. Kindle, Plant Cell 3:285-297, 1991). In vitro studies indicate that 3' IRs are inefficient transcription termination signals in higher plants and have furthermore defined processing activities that act on the 3' ends of chloroplast transcripts, suggesting that most chloroplast mRNAs are processed at their 3' ends in vivo. To investigate the mechanism of 3' end processing in Chlamydomonas reinhardtii chloroplasts, the maturation of atpB mRNA was examined in vitro and in vivo. In vitro, a synthetic atpB mRNA precursor is rapidly cleaved at a position 10 nucleotides downstream from the mature 3' terminus. This cleavage is followed by exonucleolytic processing to generate the mature 3' end. In vivo run-on transcription experiments indicate that a maximum of 50% of atpB transcripts are transcriptionally terminated at or near the IR, while the remainder are subject to 3' end processing. Analysis of transcripts derived from chimeric atpB genes introduced into Chlamydomonas chloroplasts by biolistic transformation suggests that in vivo processing and in vitro processing occur by similar or identical mechanisms.