Interactions between similar but not identical (homeologous) DNA sequences play an important biological role in the evolution of genes and genomes. To gain insight into the underlying molecular mechanism(s) of genetic recombination, we have studied inter- and intramolecular homeologous recombination in S. cerevisiae during transformation. We found that homeologous DNAs recombine efficiently. Hybrid sequences were obtained between two mammalian cytochrome P450 cDNAs, sharing 73% identity, and between the yeast ARG4 gene and its human homeologous cDNA, sharing 52% identity. Sequencing data showed that the preferred recombination events are those corresponding to the overall alignment of the DNA sequences and that the junctions are within stretches of identity of variable length (2-21 nt). We suggest that these events occur by a conventional homologous recombination mechanism.