The Escherichia coli gene recQ was identified as a RecF recombination pathway gene. The gene SGS1, encoding the only RecQ-like DNA helicase in Saccharomyces cerevisiae, was identified by mutations that suppress the top3 slow-growth phenotype. Relatively little is known about the function of Sgs1p because single mutations in SGS1 do not generally cause strong phenotypes. Mutations in genes encoding RecQ-like DNA helicases such as the Bloom and Werner syndrome genes, BLM and WRN, have been suggested to cause increased genome instability. But the exact DNA metabolic defect that might underlie such genome instability has remained unclear. To better understand the cellular role of the RecQ-like DNA helicases, sgs1 mutations were analyzed for their effect on genome rearrangements. Mutations in SGS1 increased the rate of accumulating gross chromosomal rearrangements (GCRs), including translocations and deletions containing extended regions of imperfect homology at their breakpoints. sgs1 mutations also increased the rate of recombination between DNA sequences that had 91% sequence homology. Epistasis analysis showed that Sgs1p is redundant with DNA mismatch repair (MMR) for suppressing GCRs and for suppressing recombination between divergent DNA sequences. This suggests that defects in the suppression of rearrangements involving divergent, repeated sequences may underlie the genome instability seen in BLM and WRN patients and in cancer cases associated with defects in these genes.