Poxviruses appear to use single-strand annealing reactions to recombine linear molecules sharing short (<20 bp) regions of end homology. We have examined the effect of base mismatches and base insertions on the reaction efficiency and used mismatch-containing DNAs to further characterize the polarity of the exonuclease postulated to catalyze these reactions in vivo. Incorporating one or two base substitutions within the 20-bp segment of end homology had little effect on virus-promoted recombination, reducing the frequency of recombinational repair of transfected plasmids only 10-20%. Base insertions were more destabilizing and their presence inhibited recombination 40% (with one insertion) and 75% (with two). The sequence of the recombinants recovered from virus-infected and transfected cells suggested that hybrid DNA is usually formed and then resolved by replication without repair. However, a few of the joints retained sequences suggestive of more complex enzymatic processing in vivo. We also used transfection studies to examine the fate of each of the four strands processed by the vaccinia recombination machinery. The preferential retention of base substitutions located near each of the 5'-ended strands confirmed that virus single-strand annealing reactions are catalyzed primarily by a 3'- to 5'-exonuclease. Other studies showed that mismatch repair reactions do not invalidate these conclusions, even though base excision repair systems are seemingly active and preferentially convert T. G and C. A mismatches to CG base pairs in vaccinia-infected cells.