We have examined the consequences of modifying mammalian cellular DNA sequences by homologous recombination. A plasmid carrying a 248-base-pair deletion in the neomycin phosphotransferase (neo) gene was introduced into hamster and human cells. The integrated, defective neo gene was used as a target for modification by a second round of transfection with a plasmid carrying a different (283-base-pair) deletion in the neo gene. Recombinants resulting in an intact neo gene were selected by their G418 resistance phenotype. The best ratio of homologous to nonhomologous recombination events was about 1:80. Analyses of the functional neo genes in various independent cell lines establish that simple crossovers (single and double) generated the wild-type neo genes.