Through alternative splicing, most human genes express multiple isoforms that often differ in function. To infer isoform regulation from high-throughput sequencing of cDNA fragments (RNA-seq), we developed the mixture-of-isoforms (MISO) model, a statistical model that estimates expression of alternatively spliced exons and isoforms and assesses confidence in these estimates. Incorporation of mRNA fragment length distribution in paired-end RNA-seq greatly improved estimation of alternative-splicing levels. MISO also detects differentially regulated exons or isoforms. Application of MISO implicated the RNA splicing factor hnRNP H1 in the regulation of alternative cleavage and polyadenylation, a role that was supported by UV cross-linking–immunoprecipitation sequencing (CLIP-seq) analysis in human cells. Our results provide a probabilistic framework for RNA-seq analysis, give functional insights into pre-mRNA processing and yield guidelines for the optimal design of RNA-seq experiments for studies of gene and isoform expression.