IS3 (1258 bp in length) contains two open reading frames, orfA and orfB, which are out of phase and overlap each other. We show here that three proteins of 10, 32 and 42 kDa in size are encoded by IS3. The 10 kDa protein is the product of orfA and is here called OrfA. The ATG codon of orfB which overlaps the termination codon of orfA is utilized to produce the 32 kDa protein (here called OrfB), in a manner depending on translation of orfA. The 42 kDa protein is a transframe protein (here called OrfB), which is synthesized from orfA and orfB by -1 translational frameshifting at the A4G motif present in the overlapping region. Both the frameshifting event to produce OrfB and the coupled translation event to produce OrfB are greatly stimulated by a pseudo knot structure located in the overlapping region between orfA and orfB. A mutant IS3 with a single base insertion in the A4G motif efficiently produces the OrfB transframe protein without frameshifting. This mutant was found not to mediate co-integration but to mediate adjacent deletion to produce various miniplasmids and minicircles in large amounts. The OrfB transframe protein is necessary and sufficient for formation of these deletion products, implying that it is the transposase. Most of the minicircles consisted solely of the entire IS3 sequence and a three base-pair sequence between the IS3 ends. The significance of minicircle formation is discussed.