The role of the influenza A virus panhandle structure formed from the 3'- and 5'-terminal nucleotides of virion RNA segments was studied in both an RNA polymerase binding assay and an in vitro transcription assay. Despite recent indications that promoter activity is simply a function of the 3'-terminal sequence of virion RNA, our results show that both 3'- and 5'-terminal sequences are involved in the initiation of transcription. We propose a new model for the initiation of transcription which has implications for the mechanisms by which influenza virus transcription, replication, and polyadenylation may be regulated in the infected cell