We have developed an in vitro reaction system for Drosophila P element transposition. Transposition products were recovered by selection in E. coli, and contained simple P element insertions flanked by 8 bp target site duplications as observed in vivo. Transposition required Mg+2 and partially purified P element transposase. Unlike other DNA rearrangement reactions, P element transposition in vitro used GTP as a cofactor; deoxyGTP, dideoxyGTP, or the nonhydrolyzable GTP analogs GMP-PNP or GMP-PCP were also used. Transposon DNA molecules cleaved at the P element termini were able to transpose, but those lacking 3'-hydroxyl groups were inactive. These biochemical data are consistent with genetic data suggesting that P element transposition occurs via a "cut-and-paste" mechanism.