The role of transcription in oligonucleotide (ODN)-directed gene modification has been investigated in mammalian cells. The importance of transcription is demonstrated using mammalian cell lines with varying degrees of transcription of the mutant LacZ reporter gene, residing in both episome and chromosome. Gene correction occurs more efficiently when the target gene is actively transcribed and antisense ODN is more active than sense ODN. Using an approach that combines biochemical studies with a cell-based assay to measure the functional activity of intermediates it is shown that a joint molecule, consisting of supercoiled DNA and homologous ODN targeted to correct the mutated base, is a functional intermediate in the gene repair process. Furthermore, this approach showed that a resected joint molecule is a downstream intermediate of the D-loop. These results indicate that the primary reason for efficient gene repair exhibited by the antisense ODN is its increased accessibility to the non-transcribed strand, and as a consequence an increased formation of intermediate during active transcription. Moreover, the processing of intermediates was also affected by transcription, suggesting that ODN-directed gene repair may be linked to transcription-coupled repair. Thus, transcription plays an important role in ODN-directed gene repair by affecting the formation and processing of key intermediates.