Strand exchange protein 1 (Sep1) from Saccharomyces cerevisiae catalyzes the formation of heteroduplex DNA from single-stranded and homologous linear duplex DNA. The initial pairing reaction requires limited exonucleolytic digestion of the double-stranded DNA (dsDNA) by the intrinsic 5' to 3' exonuclease of Sep1 or by an exogenous exonuclease. Subsequent strand exchange proceeds without the need for exonuclease activity. Sep1 degrades linear dsDNA at a rate of 20 nucleotides/min with an average processivity of 45 nucleotides. During strand exchange reactions joint molecules are first observed after 1-2 min, suggesting that only limited digestion is necessary for pairing. The linear dsDNA was found to pair with single-stranded DNA (ssDNA) when it was resected by only 22 nucleotides, and linear dsDNA digested by more than 22 nucleotides was observed only in joint molecules. Approximately 20 nucleotides were also the minimum extent of digestion that could support pairing. In the absence of exonuclease activity, Sep1-promoted pairing requires dsDNA molecules with single-stranded tails homologous to the circular ssDNA. These results suggest that Sep1-promoted strand exchange requires a single-strand annealing event prior to the strand displacement phase of the reaction.