The effect of homology on gene targeting was studied in the context of P-element-induced double-strand breaks at the white locus of Drosophila melanogaster. Double-strand breaks were made by excision of P-w(hd), a P-element insertion in the white gene. A nested set of repair templates was generated that contained the 8 kilobase (kb) yellow gene embedded within varying amounts of white gene sequence. Repair with unlimited homology was also analyzed. Files were scored phenotypically for conversion of the yellow gene to the white locus. Targeting of the yellow gene was abolished when all of the 3' homology was removed. Increases in template homology up to 51 base pairs (bp) did not significantly promote targeting. Maximum conversion was observed with a construct containing 493 bp of homology, without a significant increase in frequency when homology extended to the tips of the chromosome. These results demonstrate that the homology requirements for targeting a large heterologous insertion are quite different than those for a point mutation. Furthermore, heterologous insertions strongly affect the homology requirements for the conversion of distal point mutations. Several aberrant conversion tracts, which arose from templates that contained reduced homology, also were examined and characterized.