Red recombination using PCR-amplified selectable markers is a well-established technique for mutagenesis of large DNA molecules in Escherichia coli. The system has limited efficacy and versatility, however, for markerless modifications including point mutations, deletions, and particularly insertions of longer sequences. Here we describe a procedure that combines Red recombination and cleavage with the homing endonuclease I-SceI to allow highly efficient, PCR-based DNA engineering without retention of unwanted foreign sequences. We applied the method to modification of bacterial artificial chromosome (BAC) constructs harboring an infectious herpesvirus clone to demonstrate the potential of the mutagenesis technique, which was used for the insertion of long sequences such as coding regions or promoters, introduction of point mutations, scarless deletions, and insertion of short sequences such as an epitope tag. The system proved to be highly reliable and efficient and can be adapted for a variety of different modifications of BAC clones, which are fundamental tools for applications as diverse as the generation of transgenic animals and the construction of gene therapy or vaccine vectors.