The prophage of coliphage N15 is not integrated into the chromosome but exists as a linear plasmid molecule with covalently closed hairpin ends (telomeres). Upon infection the injected phage DNA circularizes via its cohesive ends. Then, a phage-encoded enzyme, protelomerase, cuts the circle and forms the hairpin telomeres. N15 protelomerase acts as a telomere-resolving enzyme during prophage DNA replication. We characterized the N15 replicon and found that replication of circular N15 miniplasmids requires only the repA gene, which encodes a multidomain protein homologous to replication proteins of bacterial plasmids replicated by a theta-mechanism. Replication of a linear N15 miniplasmid also requires the protelomerase gene and telomere regions. N15 prophage replication is initiated at an internal ori site located within repA and proceeds bidirectionally. Electron microscopy data suggest that after duplication of the left telomere, protelomerase cuts this site generating Y-shaped molecules. Full replication of the molecule and subsequent resolution of the right telomere then results in two linear plasmid molecules. N15 prophage replication thus appears to follow a mechanism that is distinct from that employed by eukaryotic replicons with this type of telomere and suggests the possibility of evolutionarily independent appearances of prokaryotic and eukaryotic replicons with covalently closed telomeres.