We have developed a DNA tag sequencing and mapping strategy called gene identification signature (GIS) analysis, in which 5' and 3' signatures of full-length cDNAs are accurately extracted into paired-end ditags (PETs) that are concatenated for efficient sequencing and mapped to genome sequences to demarcate the transcription boundaries of every gene. GIS analysis is potentially 30-fold more efficient than standard cDNA sequencing approaches for transcriptome characterization. We demonstrated this approach with 116,252 PET sequences derived from mouse embryonic stem cells. Initial analysis of this dataset identified hundreds of previously uncharacterized transcripts, including alternative transcripts of known genes. We also uncovered several intergenically spliced and unusual fusion transcripts, one of which was confirmed as a trans-splicing event and was differentially expressed. The concept of paired-end ditagging described here for transcriptome analysis can also be applied to whole-genome analysis of cis-regulatory and other DNA elements and represents an important technological advance for genome annotation.