The dnaZX gene of Escherichia coli directs the synthesis of two proteins, DnaZ and DnaX. These products are confirmed as the gamma and tau subunits of DNA polymerase III because antibody to a synthetic peptide present in both the DnaZ and DnaX proteins reacts also with the gamma and tau subunits of holoenzyme. To characterize biochemically the tau subunit, for which there has been no activity assay, the dnaZX gene was fused to the beta-galactosidase gene to encode a fusion product in which the 20 C-terminal amino acids of the DnaX protein (tau) were replaced by beta-galactosidase lacking only 7 N-terminal amino acids. The 185-kDa fusion protein, which retained beta-galactosidase activity, was overproduced to the level of about 5% of the soluble cellular protein by placing the gene fusion under control of the tac promoter and Shine-Dalgarno sequence. The fusion protein was isolated in one step by affinity chromatography on p-aminobenzyl 1-thio-beta-D-galactopyranoside-agarose. The purified fusion protein also had ATPase (and dATPase) activity that was dependent on single-stranded DNA. This activity copurified with the beta-galactosidase activity not only through the affinity column but also through a subsequent gel filtration. We conclude that the DnaX protein function involves binding to single-stranded DNA and hydrolysis of ATP or dATP, in addition to binding to other DNA polymerase III holoenzyme components, increasing the processivity of the core enzyme, and serving as a substrate for the production of the gamma subunit.