The filamentous fungus Chromocrea spinulosa (Trichoderma spinulosum) exhibits both self-fertile (homothallic) and self-sterile (heterothallic) sexual reproductive behavior. Self-fertile strains produce progeny cohorts that are 50% homothallic, 50% heterothallic. Heterothallic progeny can mate only with homothallic strains, and progeny also segregate 50% homothallic, 50% heterothallic. Sequencing of the mating type (MAT) region of homothallic and heterothallic strains revealed that both carry an intact MAT1-1 locus with three MAT1-1 genes (MAT1-1-1, MAT1-1-2, MAT1-1-3), as previously described for the Sordariomycete group of filamentous fungi. Homothallic strains, however, have a second version of MAT with the MAT1-2 locus genetically linked to MAT1-1. In this version, the MAT1-1-1 open reading frame is split into a large and small fragment and the truncated ends are bordered by 115bp direct repeats (DR). The MAT1-2-1 gene and additional sequences are inserted between the repeats. To understand the mechanism whereby C. spinulosa can exhibit both homothallic and heterothallic behavior, we utilized molecular manipulation to delete one of the DRs from a homothallic strain and insert MAT1-2 into a heterothallic strain. Mating assays indicated that: i) the DRs are key to homothallic behavior, ii) looping out of MAT1-2-1 via intra-molecular homologous recombination between the DRs in self-fertile strains results in two nuclear types in an individual (one carrying both MAT1-1 and MAT1-2 and one carrying MAT1-1 only), iii) self-fertility is achieved by inter-nuclear recognition between these two nuclear types before meiosis, iv) the two types of nuclei are in unequal proportion, v) having both an intact MAT1-1-1 and MAT1-2-1 gene in a single nucleus is not sufficient for self-fertility, and vi) the large truncated MAT1-1-1 fragment is expressed. Comparisons with MAT regions of Trichoderma reesei and Trichoderma virens suggest that several crossovers between misaligned parental MAT chromosomes may have led to the MAT architecture of homothallic C. spinulosa.