We have identified a novel structure-specific nuclease in highly fractionated extracts of the thermophilic archaeon Methanothermobacter thermautotrophicus (Mth). The 71 kDa protein product of open reading frame mth1090 is a nuclease with ATPase activity, which we call Nar71 (Nuclease-ATPase in Repair, 71 kDa). The nar71 gene is located in a gene neighbourhood proposed by genomics to encode a novel DNA repair system conserved in thermophiles. The biochemical characterization of Nar71 presented here is the first analysis from within this neighbourhood, and it supports the insight from genomics. Nuclease activity of Nar71 is specific for 3' flaps and flayed duplexes, targeting single-stranded DNA (ssDNA) regions. This activity requires Mg2+ or Mn2+ and is greatly reduced in ATP. In ATP, Nar71 displaces ssDNA, also with high specificity for 3' flap and flayed duplex DNA. Strand displacement is weak compared with nuclease activity, but in ATPS it is abolished, suggesting that Nar71 couples ATP hydrolysis to DNA strand separation. ATPase assays confirmed that Nar71 is stimulated by ssDNA, though not double-stranded DNA. Mutation of Lys-117 in Nar71 abolished ATPase and nuclease activity, and we describe a separation-of-function mutant (K68A) that has lost ATPase activity but retains nuclease activity. A model of possible Nar71 function in DNA repair is presented.