Genetic instability appears to be required for a normal colorectal epithelial cell to evolve into a cancerous one. Bloom syndrome patients have a strong predisposition to cancer that affects a variety of tissues. The mechanism of disease is attributed to genomic instability, but many questions about the nature of this instability have not yet been answered. To investigate these issues, we used gene-targeting techniques to disrupt the BLM gene in karyotypically stable colorectal cancer epithelial cells. BLM knockout cells showed an increased tendency of sister chromatids to exchange DNA strands and were substantially more likely to undergo homologous recombination at chromosomal loci than parental cells. Surprisingly, BLM-deficient colorectal cancer epithelial cells did not display gross chromosomal rearrangements nor a change in the rates of chromosome gains and losses. However, the enhanced homologous recombination was associated with losses of heterozygosity. These observations define a type of genetic instability that has significant implications for the evolution of cancer.