The genus Borrelia includes the causative agents of Lyme disease and relapsing fever. An unusual feature of these bacteria is a genome that includes linear DNA molecules with covalently closed hairpin ends referred to as telomeres. We have investigated the mechanism by which the hairpin telomeres are processed during replication. A synthetic 140 bp sequence having the predicted structure of a replicated telomere was shown to function as a viable substrate for telomere resolution in vivo, and was sufficient to convert a circular replicon to a linear form. Our results suggest that the final step in the replication of linear Borrelia replicons is a site-specific DNA breakage and reunion event to regenerate covalently closed hairpin ends. The telomere substrate described here will be valuable both for in vivo manipulation of linear DNA in Borrelia and for in vitro studies to identify and characterize the telomere resolvase.