We describe the third generation of the CAP sequence assembly program. The CAP3 program includes a number of improvements and new features. The program has a capability to clip 5' and 3' low-quality regions of reads. It uses base quality values in computation of overlaps between reads, construction of multiple sequence alignments of reads, and generation of consensus sequences. The program also uses forward-reverse constraints to correct assembly errors and link contigs. Results of CAP3 on four BAC data sets are presented. The performance of CAP3 was compared with that of PHRAP on a number of BAC data sets. PHRAP often produces longer contigs than CAP3 whereas CAP3 often produces fewer errors in consensus sequences than PHRAP. It is easier to construct scaffolds with CAP3 than with PHRAP on low-pass data with forward-reverse constraints.