We designed DNA substrates to study intrachromosomal recombination in mammalian chromosomes. Each substrate contains a thymidine kinase (tk) gene fused to a neomycin resistance (neo) gene. The fusion gene is disrupted by an oligonucleotide containing the 18-bp recognition site for endonuclease I-SceI. Substrates also contain a "donor" tk sequence that displays 1% or 19% sequence divergence relative to the tk portion of the fusion gene. Each donor serves as a potential recombination partner for the fusion gene. After stably transfecting substrates into mammalian cell lines, we investigated spontaneous recombination and double-strand break (DSB)-induced recombination following I-SceI expression. No recombination events between sequences with 19% divergence were recovered. Strikingly, even though no selection for accurate repair was imposed, accurate conservative homologous recombination was the predominant DSB repair event recovered from rodent and human cell lines transfected with the substrate containing sequences displaying 1% divergence. Our work is the first unequivocal demonstration that homologous recombination can serve as a major DSB repair pathway in mammalian chromosomes. We also found that Msh2 can modulate homologous recombination in that Msh2 deficiency promoted discontinuity and increased length of gene conversion tracts and brought about a severalfold increase in the overall frequency of DSB-induced recombination.