Polymerase eta (Polη) is a low fidelity translesion synthesis DNA polymerase that rescues damage-stalled replication by inserting deoxy-ribonucleotides opposite DNA damage sites resulting in error-free or mutagenic damage bypass. In this study we identify a new specific RNA extension activity of Polη of Saccharomyces cerevisiae . We show that Polη is able to extend RNA primers in the presence of ribonucleotides (rNTPs), and that these reactions are an order of magnitude more efficient than the misinsertion of rNTPs into DNA. Moreover, during RNA extension Polη performs error-free bypass of the 8-oxoguanine and thymine dimer DNA lesions, though with a 10 ³ and 10 ² –fold lower efficiency, respectively, than it synthesizes opposite undamaged nucleotides. Furthermore, in vivo experiments demonstrate that the transcription of several genes is affected by the lack of Polη, and that Polη is enriched over actively transcribed regions. Moreover, inactivation of its polymerase activity causes similar transcription inhibition as the absence of Polη. In summary, these results suggest that the new RNA synthetic activity of Polη can have in vivo relevance.