Introduction of DNA into Neurospora crassa can lead to sequence instability in the sexual phase of the life cycle. Sequence instability was investigated by using a set of strains transformed with single copies of a plasmid including host sequences, Neurospora sequences deleted from the host genome, and foreign sequences. The sequences already represented in the host were rearranged at high frequency in a cross. In general, both elements of the duplication, that from the plasmid and that from the host, became rearranged, whether or not they were linked. Unique sequences were left unaltered. Cytosine residues in the rearranged sequences typically became methylated de novo. Results from tetrad analyses indicated that the rearrangements occur before meiosis, during a stage between fertilization and karyogamy. We suggest that this previously unrecognized genetic process, RIP (rearrangement induced premeiotically), may contribute diversity for evolution and also maintain the gross organization of the genome.