In eukaryotes the MSH2-MSH3 and MSH2-MSH6 heterodimers initiate mismatch repair (MMR) by recognizing and binding to DNA mismatches. The MLH1-PMS1 heterodimer then interacts with the MSH proteins at or near the mismatch site and is thought to act as a mediator to recruit downstream repair proteins. Here we analyzed five msh2 mutants that are functional in removing 3' non-homologous tails during double-strand break repair but are completely defective in MMR. Because non-homologous tail removal does not require MSH6, MLH1, or PMS1 functions, a characterization of the msh2 separation of function alleles should provide insights into early steps in MMR. Using the Taq MutS crystal structure as a model, three of the msh2 mutations, msh2-S561P, msh2-K564E, msh2-G566D, were found to map to a domain in MutS involved in stabilizing mismatch binding. Gel mobility shift and DNase I footprinting assays showed that two of these mutations conferred strong defects on MSH2-MSH6 mismatch binding. The other two mutations, msh2-S656P and msh2-R730W, mapped to the ATPase domain. DNase I footprinting, ATP hydrolysis, ATP binding, and MLH1-PMS1 interaction assays indicated that the msh2-S656P mutation caused defects in ATP-dependent dissociation of MSH2-MSH6 from mismatch DNA and in interactions between MSH2-MSH6 and MLH1-PMS1. In contrast, the msh2-R730W mutation disrupted MSH2-MSH6 ATPase activity but did not strongly affect ATP binding or interactions with MLH1-PMS1. These results support a model in which MMR can be dissected into discrete steps: stable mismatch binding and sensing, MLH1-PMS1 recruitment, and recycling of MMR components.