DNA replication normally occurs with high fidelity, but certain "slippery" regions of DNA with tracts of mono-, di-, and trinucleotide repeats are frequently mutation hot spots. We have developed an in vitro assay to study the mechanism of dinucleotide repeat expansion. The primer-template resembles a base excision repair substrate with a single nucleotide gap centered opposite a tract of nine CA repeats; nonrepeat sequences flank the dinucleotide repeats. DNA polymerases are expected to repair the gap, but further extension is possible if the DNA polymerase can displace the downstream oligonucleotide. We report here that the wild type bacteriophage T4 DNA polymerase carries out gap and strand displacement replication and also catalyzes a dinucleotide expansion reaction. Repeat expansion was not detected for an exonuclease-deficient T4 DNA polymerase or for Escherichia coli DNA polymerase I. The dinucleotide repeat expansion reaction catalyzed by wild type T4 DNA polymerase required a downstream oligonucleotide to "stall" replication and 3' --> 5' exonuclease activity to remove the 3'-nonrepeat sequence adjacent to the repeat tract in the template strand. These results suggest that dinucleotide repeat expansion may be stimulated in vivo during DNA repair or during processing of Okazaki fragments.