Gene targeting by homologous recombination (HR) can be induced by double-strand breaks (DSBs), however these breaks can be toxic and potentially mutagenic. We investigated the I-AniI homing endonuclease engineered to produce only nicks, and found that nicks induce HR with both plasmid and adeno-associated virus (AAV) vector templates. The rates of nick-induced HR were lower than with DSBs (24-fold lower for plasmid transfection and 4- to 6-fold lower for AAV vector infection), but they still represented a significant increase over background (240- and 30-fold, respectively). We observed severe toxicity with the I-AniI 'cleavase', but no evidence of toxicity with the I-AniI 'nickase.' Additionally, the frequency of nickase-induced mutations at the I-AniI site was at least 150-fold lower than that induced by the cleavase. These results, and the observation that the surrounding sequence context of a target site affects nick-induced HR but not DSB-induced HR, strongly argue that nicks induce HR through a different mechanism than DSBs, allowing for gene correction without the toxicity and mutagenic activity of DSBs.