A method has been established to convert pYAC4-based linear yeast artificial chromosomes (YACs) into circular chromosomes that can also be propagated in Escherichia coli cells as bacterial artificial chromosomes (BACs). The circularization is based on use of a vector that contains a yeast dominant selectable marker (G418R), a BAC cassette and short targeting sequences adjacent to the edges of the insert in the pYAC4 vector. When it is introduced into yeast, the vector recombines with the YAC target sequences to form a circular molecule, retaining the insert but discarding most of the sequences of the YAC telomeric arms. YACs up to 670 kb can be efficiently circularized using this vector. Re-isolation of megabase-size YAC inserts as a set of overlapping circular YAC/BACs, based on the use of an Alu-containing targeting vector, is also described. We have shown that circular DNA molecules up to 250 kb can be efficiently and accurately transferred into E.coli cells by electroporation. Larger circular DNAs cannot be moved into bacterial cells, but can be purified away from linear yeast chromosomes. We propose that the described system for generation of circular YAC derivatives can facilitate sequencing as well as functional analysis of genomic regions.