Short hairpin (sh)RNAs delivered by recombinant adeno-associated viruses (rAAVs) are valuable tools to study gene function in vivo and a promising gene therapy platform. Our data show that incorporation of shRNA transgenes into rAAV constructs reduces vector yield and produces a population of truncated and defective genomes. We demonstrate that sequences with hairpins or hairpin-like structures drive the generation of truncated AAV genomes through a polymerase redirection mechanism during viral genome replication. Our findings reveal the importance of genomic secondary structure when optimizing viral vector designs. We also discovered that shDNAs could be adapted to act as surrogate mutant inverted terminal repeats (mTRs), sequences that were previously thought to be required for functional self-complementary AAV vectors. The use of shDNAs as artificial mTRs opens the door to engineering a new generation of AAV vectors with improved potency, genetic stability, and safety for both preclinical studies and human gene therapy.,Published by Elsevier Inc.