The RAG1 and RAG2 proteins are known to initiate V(D)J recombination by making a double-strand break between the recombination signal sequence (RSS) and the neighboring coding DNA. We show that these proteins can also drive the coupled insertion of cleaved recombination signals into new DNA sites in a transpositional reaction. This RAG-mediated DNA transfer provides strong evidence for the evolution of the V(D)J recombination system from an ancient mobile DNA element and suggests that repeated transposition may have promoted the expansion of the antigen receptor loci. The inappropriate diversion of V(D)J rearrangement to a transpositional pathway may also help to explain certain types of DNA translocation associated with lymphatic tumors.