The prime editor system composed of Streptococcus pyogenes Cas9 nickase (nSpCas9) and engineered Moloney murine leukaemia virus reverse transcriptase (M-MLV RT) collaborates with a prime editing guide RNA (pegRNA) to facilitate a wide variety of precise genome edits in living cells¹. However, owing to a lack of structural information, the molecular mechanism of pegRNA-guided reverse transcription by the prime editor remains poorly understood. Here we present cryo-electron microscopy structures of the SpCas9–M-MLV RTΔRNaseH–pegRNA–target DNA complex in multiple states. The termination structure, along with our functional analysis, reveals that M-MLV RT extends reverse transcription beyond the expected site, resulting in scaffold-derived incorporations that cause undesired edits at the target loci. Furthermore, structural comparisons among the pre-initiation, initiation and elongation states show that M-MLV RT remains in a consistent position relative to SpCas9 during reverse transcription, whereas the pegRNA–synthesized DNA heteroduplex builds up along the surface of SpCas9. On the basis of our structural insights, we rationally engineered pegRNA variants and prime-editor variants in which M-MLV RT is fused within SpCas9. Collectively, our findings provide structural insights into the stepwise mechanism of prime editing, and will pave the way for the development of a versatile prime editing toolbox.