Nonhomologous DNA end joining (NHEJ) is considered the major pathway of double-strand break (DSB) repair in vertebrate cells. Various studies indicated the existence of at least two different NHEJ pathways; one that joins DNA ends accurately and depends on Ku, a protein heterodimer that binds to DNA ends, and one that generates deletions and is independent of Ku. While the former pathway has been characterised in some detail, only little is known about the latter error-prone. We have partially purified such an NHEJ activity from extracts of Xenopus laevis eggs. End-joined junctions formed in the most extensively purified protein fraction displayed deletions containing short patches of sequence homology at their break points, a feature characteristic of single-strand annealing (SSA). Detailed biochemical characterisation revealed the presence of DNA ligase III, DNA polymerase epsilon, FEN-1 endonuclease, and exonuclease activities of 5'-3' and 3'-5' directionality. We show that these activities are able to correctly process proposed intermediates of SSA. Interestingly, neither Ku nor the associated DNA-dependent protein kinase were detected, indicating that the mechanism can dispense with Ku. Our findings provide evidence for the existence of an error-prone NHEJ pathway that creates deletions by microhomology-driven SSA.