Activation-induced deaminase (AID) is a protein indispensable for the diversification of immunoglobulin (Ig) genes by somatic hypermutation (SHM), class switch recombination (CSR), and gene conversion. To date, the precise role of AID in these processes has not been determined. Here we demonstrate that purified, tetrameric AID can deaminate cytidine residues in DNA, but not in RNA. Furthermore, we show that AID will bind and deaminate only single-stranded DNA, which implies a direct, functional link between hypermutation and transcription. Finally, AID does not target mutational hotspots, thus mutational targeting to specific residues must be attributed to different factors.