We have explored the effects of a variety of structural and sequence changes in the initiation region of the phage T7 promoter on promoter function. At promoters in which the template strand (T strand) is intact, initiation is directed a minimal distance of 5 nt downstream from the binding region. Although the sequence of the DNA surrounding the start site is not critical for correct initiation, it is important for melting of the promoter and stabilization of the initiation complex. At promoters in which the integrity of T strand is interrupted by nicks or gaps between -5 and -2 the enzyme continues to initiate predominately at +1. However, under these conditions there is a decrease in the release of abortive products of 8-10 nt, a decrease in the synthesis of poly(G) products (which arise by slippage of the nascent transcript), and a defect in displacement of the RNA. We propose that unlinking the binding and initiation regions of the T strand changes the manner in which this strand is retained in the abortive complex, reducing or eliminating the need to pack or "scrunch" the strand into the complex during initiation and lowering a thermodynamic barrier to its translocation.