The purified integration protein (IN) of avian myeloblastosis virus is shown to nick double-stranded oligodeoxynucleotide substrates that mimic the ends of the linear form of viral DNA. In the presence of Mg2+, nicks are created 2 nucleotides from the 3' OH ends of both the U5 plus strand and the U3 minus strand. Similar cleavage is observed in the presence of Mn2+ but only when the extent of the reaction is limited. Neither the complementary strands nor sequences representing the termini of human immunodeficiency virus type 1 DNA were cleaved at analogous positions. Analysis of a series of substrates containing U5 base substitutions has defined the sequence requirements for site-selective nicking; nucleotides near the cleavage site are most critical for activity. The minimum substrate size required to demonstrate significant activity corresponds to the nearly perfect 15-base terminal inverted repeat. This in vitro activity of IN thus produces viral DNA ends that are joined to host DNA in vivo and corresponds to an expected early step in the integrative recombination reaction. These results provide the first enzymatic support using purified retroviral proteins for a linear DNA precursor to the integrated provirus.