The 80-kDa gene 5 protein encoded by bacteriophage T7 shares significant amino acid homology with the large fragment of Escherichia coli DNA polymerase I (Klenow fragment). Like the Klenow fragment, T7 gene 5 protein has both DNA polymerase and 3' to 5' exonuclease activities. However, unlike the Klenow fragment, T7 gene 5 protein binds tightly to E. coli thioredoxin to form a complex that has a high processivity of nucleotide polymerization. In order to identify the domains of gene 5 protein responsible for polymerization, hydrolysis, and binding of thioredoxin, we have analyzed proteolytic fragments of gene 5 protein. Cleavage of the protein within one protease-sensitive region (residue 250-300) yields two molecular weight species of peptides of 32-37 and 43-51 kDa derived from the N-terminal and C-terminal region, respectively. DNA polymerase activity is found within the C-terminal fragments and exonuclease activity within the N-terminal fragments. Thioredoxin stimulates the DNA polymerase activity of the C-terminal fragments. All fragments bind to DNA. In addition to delineating the polymerase and exonuclease domains, the protease-sensitive region appears to interact with E. coli thioredoxin. Thioredoxin protects this region from proteolysis, and alteration of this region reduces the ability of thioredoxin to stimulate polymerase activity.