An in vitro system for double-strand-break repair and recombination of plasmid substrates catalyzed by extracts prepared from yeast nuclei has been developed. Recombination events that generate crossover products were detected amongst reaction products by Southern blot hybridization, or by the polymerase chain reaction (PCR). The recombination reaction was found to be stimulated by a double-strand break within homologous sequences and proceeded by a mechanism that involved branched DNA intermediates. In addition to pairing events that generate crossovers, the formation of inverted repeats (head-to-head and tail-to-tail joined products) was also detected. Two models are presented which propose that the formation of crossover products and inverted repeats occur by similar mechanisms.