Most RNA molecules that are endowed with catalytic activity function in the form of ribonucleoproteins within cells. These complexes are frequently large, poorly defined, and difficult to study. As a model system to study biological catalysis by ribonucleoproteins, we have modified the hairpin ribozyme by inserting an RNA structure that serves as a binding site for bacteriophage R17 coat protein in the form of an extension to ribozyme helix 4, which lies at the periphery of the catalytic domain. In the absence of protein, we find that incorporation of the protein-binding domain increases the catalytic efficiency of the hairpin ribozyme by 2-fold for the cleavage reaction and 16-fold for the ligation reaction. This increase in activity correlates with an increase in the proportion of molecules which fold into the active tertiary structure, as measured by a UV cross-linking assay. Mobility-shift and filter-binding assays of complex formation show that R17 coat protein binds to the chimeric ribozyme with a dissociation constant essentially identical to that of the isolated protein-binding domain; no binding of the protein to the unmodified ribozyme could be detected. The kinetics of cleavage and ligation reactions are not altered by the presence of saturating concentrations of coat protein, and competition studies demonstrate that the protein remains bound to the ribozyme throughout the catalytic cycle. These studies establish that the hairpin ribozyme can be engineered to function efficiently in the form of a ribonucleoprotein in vitro and will serve as the basis for future experimentation to understand mechanisms of protein modulation of catalytic RNA activity, and to introduce other protein-binding domains, for example, HIV-1 rev-binding and tar elements, which may be useful for influencing subcellular localization, regulating intracellular activity, or generating ribozymes that also function as "decoys" in antiviral applications.