Rearrangements within plasmid DNA are commonly observed during transformation of eukaryotic cells. One possible cause of rearrangements may be recombination between repeated sequences induced by some lesions in the plasmid. We have examined the mechanisms of transformation-associated recombination in the yeast Saccharomyces cerevisiae using a plasmid system which allowed the effects of physical state and/or extent of homology on recombination to be studied. The plasmids contain homologous or diverged (19%) repeats of the URA3 genes (from S. cerevisiae or S. carlsbergensis) separated by the genetically detectable ADE2 colour marker. Recombination during transformation for covalently closed circular plasmids was over 100-fold more frequent than during mitotic growth. The frequency of recombination is partly dependent on the method of transformation in that procedures involving lithium acetate or spheroplasting yield higher frequencies than electroporation. When present in the repeats, unique single-strand breaks that are ligatable, as well as double-strand breaks, lead to high levels of recombination between diverged and identical repeats. The transformation-associated recombination between repeat DNAs is under the influence of the RAD52 and RAD1 genes.