Replicating poxviruses catalyze high-frequency recombination reactions by a process that is not well understood. Using transfected DNA substrates we show that these viruses probably use a single-strand annealing recombination mechanism. Plasmids carrying overlapping portions of a luciferase gene expression cassette and luciferase assays were first shown to provide an accurate method of assaying recombinant frequencies. We then transfected pairs of DNAs into virus-infected cells and monitored the efficiencies of linear-by-linear, linear-by-circle, and circle-by-circle recombination. These experiments showed that vaccinia virus recombination systems preferentially catalyze linear-by-linear reactions much more efficiently than circle-by-circle reactions and catalyze circle-by-circle reactions more efficiently than linear-by-circle reactions. Reactions involving linear substrates required surprisingly little sequence identity, with only 16-bp overlaps still permitting ~4% recombinant production. Masking the homologies by adding unrelated DNA sequences to the ends of linear substrates inhibited recombination in a manner dependent upon the number of added sequences. Circular molecules were also recombined by replicating viruses but at frequencies 15- to 50-fold lower than are linear substrates. These results are consistent with mechanisms in which exonuclease or helicase processing of DNA ends permits the forming of recombinants through annealing of complementary single strands. Our data are not consistent with a model involving strand invasion reactions, because such reactions should favor mixtures of linear and circular substrates. We also noted that many of the reaction features seen in vivo were reproduced in a simple in vitro reaction requiring only purified vaccinia virus DNA polymerase, single-strand DNA binding protein, and pairs of linear substrates. The 3'-to-5' exonuclease activity of poxviral DNA polymerases potentially catalyzes recombination in vivo.