Escherichia coli MutH possesses an extremely weak d(GATC) endonuclease that responds to the state of methylation of the sequence (Welsh, K. M., Lu, A.-L., Clark, S., and Modrich, P. (1987) J. Biol. Chem. 262, 15624-15629). MutH endonuclease is activated in a reaction that requires MutS, MutL, ATP, and Mg2+ and depends upon the presence of a mismatch within the DNA. The degree of activation correlates with the efficiency with which a particular mismatch is subject to methyl-directed repair (G-T greater than G-G greater than A-C greater than C-C), and activated MutH responds to the state of DNA adenine methylation. Incision of an unmethylated strand occurs immediately 5' to a d(GATC) sequence, leaving 5' phosphate and 3' hydroxy termini (pN decreases pGpAp-TpC). Unmethylated d(GATC) sites are subject to double strand cleavage by activated MutH, an effect that may account for the killing of dam- mutants by 2-aminopurine. The mechanism of activation apparently requires ATP hydrolysis since adenosine-5'-O-(3-thiotriphosphate) not only fails to support the reaction but also inhibits activation promoted by ATP. The process has no obligate polarity as d(GATC) site incision by the activated nuclease can occur either 3' or 5' to the mismatch on an unmethylated strand. However, activation is sensitive to DNA topology. Circular heteroduplexes are better substrates than linear molecules, and activity of DNAs of the latter class depends on placement of the mismatch and d(GATC) site within the molecule. MutH activation is supported by a 6-kilobase linear heteroduplex in which the mismatch and d(GATC) site are centrally located and separated by 1 kilobase, but a related molecule, in which the two sites are located near opposite ends of the DNA, is essentially inactive as substrate. We conclude that MutH activation represents the initiation stage of methyl-directed repair and suggest that interaction of a mismatch and a d(GATC) site is provoked by MutS binding to a mispair, with subsequent ATP-dependent translocation of one or more Mut proteins along the helix leading to cleavage at a d(GATC) sequence on either side of the mismatch.