Integration of foreign DNA was observed in the Gram-positive human pathogen Streptococcus pneumoniae (pneumococcus) after transformation with DNA from a recombinant Escherichia coli bacteriophage lamda carrying a pneumococcal insert. Segments of lamda DNA replaced chromosomal sequences adjacent to the region homologous with the pneumococcal insert, whence the name insertion-deletion. Here we report that a pneumococcal insert was absolutely required for insertion-deletion formation, but could be as short as 153 bp; that the sizes of foreign DNA insertions (289-2,474 bp) and concomitant chromosomal deletions (45-1,485 bp) were not obviously correlated; that novel joints clustered preferentially within segments of high GC content; and that the crossovers in 29 independent novel joints were located 1 bp from the border or within short (3-10 nt long) stretches of identity (microhomology) between resident and foreign DNA. The data are consistent with a model in which the insert serving as a homologous recombination anchor favors interaction and subsequent illegitimate recombination events at microhomologies between foreign and resident sequences. The potential of homology- directed illegitimate recombination for genome evolution was illustrated by the trapping of functional heterologous genes.