The genus Borrelia includes the causative agents of Lyme disease and relapsing fever. An unusual feature of these bacteria is a segmented genome consisting mostly of a number of linear DNA molecules with covalently closed hairpin ends or telomeres. In this study we show that the BBB03 locus encodes the B. burgdorferi telomere resolvase, ResT. The purified protein catalyzes telomere resolution in vitro through a unique reaction: breakage of two phosphodiester bonds in a single DNA duplex (one on each strand) and joining of each end with the opposite DNA strand to form covalently closed hairpin telomeres. Telomere resolution by ResT occurs through a two-step transesterification reaction involving the formation of a covalent protein-DNA intermediate at a position three nucleotides from the axis of symmetry in each strand of the substrate.