All biological processes take place in highly crowded cellular environments. However, the effect that molecular crowding agents have on the folding and catalytic properties of RNA molecules remains largely unknown. Here, we have combined single-molecule fluorescence resonance energy transfer (smFRET) and bulk cleavage assays to determine the effect of a molecular crowding agent (polyethylene glycol, PEG) on the folding and catalysis of a model RNA enzyme, the hairpin ribozyme. Our single-molecule data reveal that PEG favors the formation of the docked (active) structure by increasing the docking rate constant with increasing PEG concentrations. Furthermore, Mg2+ ion-induced folding in the presence of PEG occurs at concentrations ~7-fold lower than in the absence of PEG, near the physiological range (~1 mM). Lastly, bulk cleavage assays in the presence of the crowding agent show that the ribozyme's activity increases while the heterogeneity decreases. Our data is consistent with the idea that molecular crowding plays an important role in the stabilization of ribozyme active conformations in vivo.