An arg-2 mutant of Neurospora crassa was transformed to prototrophy with a pBR322-N. crassa genomic DNA library. Repeated attempts to recover the integrated transforming DNA or segments thereof by digestion, ligation, and transformation of Escherichia coli, with selection for the plasmid marker ampicillin resistance, were unsuccessful. Analyses of a N. crassa transformant demonstrated that the introduced DNA was heavily methylated at cytosine residues. This methylation was shown to be responsible for our inability to recover transformants in standard strains of E. coli; transformants were readily obtained in a strain which is deficient in the two methylcytosine restriction systems. Restriction of methylated DNA in E. coli may explain the general failure to recover vector or transforming sequences from N. crassa transformants.