The DNA polymerase induced after infection of Escherichia coli by bacteriophage T7 can exist in two forms. One distinguishing property of Form I, the elimination of nicks in double-stranded DNA templates, strongly suggests that this form of the polymerase catalyzes limited DNA synthesis at nicks, resulting in displacement of the downstream strand. In this paper, we document this reaction by a detailed characterization of the DNA product. DNA synthesis on circular, duplex DNA templates containing a single site-specific nick results in circular molecules bearing duplex branches. Analysis of newly synthesized DNA excised from the product shows that the majority of the branches are less than 500 base pairs in length and that they arise from a limited number of sites. The branches have fully base-paired termini but are attached by two noncomplementary DNA strands that have a combined length of less than 30 nucleotides. The product molecules are topologically constrained as a result of the duplex branch. DNA sequence analysis has provided an unequivocal structure of one such product molecule. We conclude that strand displacement synthesis catalyzed by Form I of T7 DNA polymerase is terminated by a template-switching reaction. We propose two distinct models for template-switching that we call primer relocation and rotational strand exchange. Strand displacement synthesis catalyzed by Form I of T7 DNA polymerase effectively converts T7 DNA circles that are held together by hydrogen bonds in their 160-nucleotide-long terminal redundancy to T7-length linear molecules. We suggest that strand displacement synthesis catalyzed by T7 DNA polymerase is essential in vivo to the processing of a T7 DNA concatemer to mature T7 genomes.