In an effort to make transgenesis more flexible and reproducible, we developed a system based on novel 5' and 3' 'gene trap' vectors containing heterospecific Flp recognition target sites and the corresponding 'exchange' vectors allowing the insertion of any DNA sequence of interest into the trapped locus. Flp-recombinase-mediated cassette exchange was demonstrated to be highly efficient in our system, even in the absence of locus-specific selection. The feasibility of constructing a library of ES cell clones using our gene trap vectors was tested and a thousand insertion sites were characterized, following electroporation in ES cells, by RACE-PCR and sequencing. We validated the system in vivo for two trapped loci in transgenic mice and demonstrated that the reporter transgenes inserted into the trapped loci have an expression pattern identical to the endogenous genes. We believe that this system will facilitate in vivo studies of gene function and large-scale generation of mouse models of human diseases, caused by not only loss but also gain of function alleles.