HIV-1 Tat protein regulates transcription elongation by binding to the 59 nt TAR RNA stem–loop structure transcribed from the HIV-1 5′ long terminal repeat (5′-LTR). This established Tat–TAR interaction was used to investigate mRNA folding and RNA–protein interactions during early transcription elongation from the HIV-1 5′-LTR. Employing a new site-specific photo-cross-linking strategy to isolate transcription elongation complexes at early steps of elongation, we found that Tat interacts with HIV-1 transcripts before the formation of full-length TAR (TAR59). Analysis of RNA secondary structure by free energy profiling and ribonuclease digestion indicated that nascent transcripts folded into an alternative TAR RNA structure (TAR31), which requires only 31 nt to form and includes an analogous Tat-binding bulge structure. Functionally, TAR31, similar to TAR59, acts as a transcriptional terminator in vitro, and mRNA expression from TAR31-deficient HIV-1 5′-LTR mutant promoters is significantly decreased. Our results support a role for TAR31 in the control of HIV-1 mRNA transcription and we propose that this structure is important to stabilize the short early transcripts before the transcription complex commits for processive elongation. Overall, this study demonstrates that RNA folding during HIV-1 transcription is dynamic and that as the nascent RNA chain grows during transcription, it folds into a number of conformations that function to regulate gene expression. Finally, our results provide a new experimental strategy for studying mRNA conformation changes during transcription that can be applied to investigate the folding and function of nascent RNA structures transcribed from other promoters.