To investigate the role of the presumed DNA mismatch repair (MMR) gene Msh2 in genome stability and tumorigenesis, we have generated cells and mice that are deficient for the gene. Msh2-deficient cells have lost mismatch binding and have acquired microsatellite instability, a mutator phenotype, and tolerance to methylating agents. Moreover, in these cells, homologous recombination has lost dependence on complete identity between interacting DNA sequences, suggesting that Msh2 is involved in safeguarding the genome from promiscuous recombination. Msh2-deficient mice display no major abnormalities, but a significant fraction develops lymphomas at an early age. Thus, Msh2 is involved in MMR, controlling several aspects of genome stability; loss of MMR-controlled genome stability predisposes to cancer.