Mammalian mitochondrial DNA maintains a novel displacement-loop region containing the major sites of transcriptional initiation and the origin of heavy strand DNA replication. Because the exact map positions of the 5' termini of nascent mouse displacement-loop strands are known, it is possible to examine directly a potential relationship between replication priming and transcription. Analyses of in vivo nucleic acids complementary to the displacement-loop region reveal two species with identical 5' ends at map position 16 183. One is entirely RNA and the other is RNA covalently linked to DNA. In the latter the transition from RNA to DNA is sharp, occurring near or within a series of previously identified conserved sequences 74-163 nucleotides downstream from the transcriptional initiation site. These data suggest that the initial events in replication priming and transcription are the same and that the decision to synthesize DNA or RNA is a downstream event under the control of short, conserved displacement-loop template sequences.