Nonhomologous DNA end joining (NHEJ) is one of the major double-strand break (DSB) repair pathways in higher eukaryotes. Recently, it has been shown that alternative NHEJ (A-NHEJ) occurs in the absence of classical NHEJ and is implicated in chromosomal translocations leading to cancer. In the present study, we have developed a novel biochemical assay system utilizing DSBs flanked by varying lengths of microhomology to study microhomology-mediated alternative end joining (MMEJ). We show that MMEJ can operate in normal cells, when microhomology is present, irrespective of occurrence of robust classical NHEJ. Length of the microhomology determines the efficiency of MMEJ, 5 nt being obligatory. Using this biochemical approach, we show that products obtained are due to MMEJ, which is dependent on MRE11, NBS1, LIGASE III, XRCC1, FEN1 and PARP1. Thus, we define the enzymatic machinery and microhomology requirements of alternative NHEJ using a well-defined biochemical system.