Recombination between moderately divergent DNA sequences is impaired compared with identical sequences. In yeast, an HO endonuclease-induced double-strand break can be repaired by single-strand annealing (SSA) between flanking homologous sequences. A 3% sequence divergence between 205-bp sequences flanking the double-strand break caused a 6-fold reduction in repair compared with identical sequences. This reduction in heteroduplex rejection was suppressed in a mismatch repair-defective msh6 Delta strain and partially suppressed in an msh2 separation-of-function mutant. In mlh1 Delta strains, heteroduplex rejection was greater than in msh6 Delta strains but less than in wild type. Deleting PMS1, MLH2,or MLH3 had no effect on heteroduplex rejection, but a pms1 Delta mlh2 Delta mlh3 Delta triple mutant resembled mlh1 Delta. However, correction of the mismatches within heteroduplex SSA intermediates required PMS1 and MLH1 to the same extent as MSH2 and MSH6. An SSA competition assay in which either diverged or identical repeats can be used for repair showed that heteroduplex DNA is likely to be unwound rather than degraded. This conclusion is supported by the finding that deleting the SGS1 helicase also suppressed heteroduplex rejection.