We demonstrate the feasibility of targeted gene replacement at an endogenous, chromosomal gene locus in cultured mammalian cells, employing a two-step strategy similar to an approach routinely used for genetic manipulation in yeast. Utilizing an APRT+ recombinant generated by targeted integration of plasmid sequences (including a functional copy of the gpt gene) at the CHO APRT locus, we have been able to select gpt- "pop-out" recombinants that have arisen by intrachromosomal recombination between APRT direct repeats at the targeted integration site. Reciprocal exchanges leading to "pop-out" of integrated plasmid/gpt gene sequences occur at a rate of approximately 6.3 x 10(-6) per cell generation. Depending on the site of crossover, such "pop-out" events result in either replacement or restoration of the original APRT target gene sequence.