Catalytic RNAs or ribozymes are considered to be central to primordial biology. Most ribozymes require moderate to high concentrations of divalent cations such as Mg2+ to fold into their catalytically competent structures and perform catalysis. However, undesirable effects of Mg2+ such as hydrolysis of reactive RNA building blocks and degradation of RNA structures are likely to undermine its beneficial roles in ribozyme catalysis. Further, prebiotic cell-like compartments bounded by fatty acid membranes are destabilized in the presence of Mg2+, making ribozyme function inside prebiotically relevant protocells a significant challenge. Therefore, we sought to identify conditions that would enable ribozymes to retain activity in low concentrations of Mg2+. Inspired by the ability of ribozymes to function inside crowded cellular environments with <1 mM free Mg2+, we tested molecular crowding as a potential mechanism to lower the Mg2+ concentration required for ribozyme-catalyzed RNA assembly. Here, we show that the ribozyme-catalyzed ligation of phosphorimidazolide RNA substrates is significantly enhanced in the presence of the artificial crowding agent polyethylene glycol. We also found that molecular crowding preserves ligase activity under denaturing conditions such as alkaline pH and the presence of urea. We also show that crowding-induced stimulation of RNA-catalyzed RNA assembly is not limited to phosphorimidazolide ligation but extends to the RNA-catalyzed polymerization of nucleoside triphosphates. RNA-catalyzed RNA ligation is also stimulated by the presence of prebiotically relevant small molecules such as ethylene glycol, ribose, and amino acids, consistent with a role for molecular crowding in primordial ribozyme function and more generally, in the emergence of RNA-based cellular life.