Chimeric oligonucleotides consisting of RNA and DNA residues have been shown to catalyze site-directed genetic alteration in mammalian cells both in vitro and in vivo. Since the frequency of these events appears to be logs higher than the rates of gene targeting, a process involving homologous recombination, we developed a system to study the mechanisms of chimera-directed gene conversion. Using a mammalian cell-free extract and a genetic readout in Escherichia coli, we find that point mutations and single base deletions can be corrected at frequencies of approximately 0.1% and 0.005%, respectively. The reaction depends on an accurately designed chimera and the presence of functional hMSH2 protein. The results of genetic and biochemical studies reported herein suggest that the process of mismatch repair functions in site-directed gene correction.