After gene rearrangement, immunoglobulin variable genes are diversified by somatic hypermutation or gene conversion, whereas the constant region is altered by class-switch recombination. All three processes depend on activation-induced cytidine deaminase (AID), a B-cell-specific protein that has been proposed (because of sequence homology) to function by RNA editing. But indications that the three gene diversification processes might be initiated by a common type of DNA lesion, together with the proposal that there is a first phase of hypermutation that targets dC/dG, suggested to us that AID may function directly at dC/dG pairs. Here we show that expression of AID in Escherichia coli gives a mutator phenotype that yields nucleotide transitions at dC/dG in a context-dependent manner. Mutation triggered by AID is enhanced by a deficiency of uracil-DNA glycosylase, which indicates that AID functions by deaminating dC residues in DNA. We propose that diversification of functional immunoglobulin genes is triggered by AID-mediated deamination of dC residues in the immunoglobulin locus with the outcome--that is, hypermutation phases 1 and 2, gene conversion or switch recombination--dependent on the way in which the initiating dU/dG lesion is resolved.