The early region of T7 DNA is transcribed as a single unit in a Ribonuclease III-deficient E. coli strain to produce large molecules essentially identical to those produced in vitro by E. coli RNA polymerase. As with the in vitro RNAs, these molecules are cut by purified RNase III in vitro to produce the messenger RNAs normally observed in vivo. Thus, the normal pathway for producing the T7 early messenger RNAs in vivo appears to involve endonucleolytic cleavage by RNase III. The uninfected RNase III-deficient strain contains several RNAs not observed in the parent strain. Patterns of labeling in vivo suggest that the largest of these RNAs, about 1.8 x 10(6) daltons, may be a precursor to the 16S and 23S ribosomal RNAs. When this large molecule is treated in vitro with purified RNase III, molecules the size of precursor 16S and 23S ribosomal RNAs are released; hybridization competition experiments also indicate that the 1.8 x 10(6) dalton RNA does indeed represent ribosomal RNA. Thus, RNase III cleavage seems to be part of the normal pathway for producing at least the 16S and 23S ribosomal RNAs in vivo. Several smaller molecules are also released from the 1.8 x 10(6) dalton RNA by RNase III, but it is not yet established whether any of these contain 5S RNA sequences.