Methyl-directed mismatch repair is initiated by the mismatch-provoked, MutHLS-dependent cleavage of the unmodified strand at a hemimethylated d(GATC) sequence. This reaction is independent of the polarity of the unmodified strand and can occur either 3' or 5' to the mismatch on the unmethylated strand (Au, K. G., Welsh, K., and Modrich, P. (1992) J. Biol. Chem. 267, 12142-12148). The overall repair reaction also occurs without regard to polarity of the unmethylated strand. Both hemimethylated configurations of a linear heteroduplex containing a single d(GATC) sequence are subject to methyl-directed correction in Escherichia coli extracts and in a purified repair system. Repair of both heteroduplex orientations requires MutH, MutL, MutS, DNA helicase II, SSB, and DNA polymerase III holoenzyme, but the two substrates differ with respect to exonuclease requirements for correction. When the unmethylated d(GATC) sequence that directs repair is located 5' to the mismatch on the unmodified strand, mismatch correction requires the 5'--> 3' hydrolytic activity of exonuclease VII or RecJ exonuclease. Repair directed by an unmodified d(GATC) sequence situated 3' to the mismatch depends on the 3'--> 5' activity of exonuclease I. Specific requirements for these activities are evident with circular heteroduplexes containing a single asymmetrically placed d(GATC) sequence, with the requirement for a 5'--> 3' or 3'--> 5' hydrolytic activity being determined by the orientation of the unmethylated strand along the shorter path joining the two sites in the DNA circle. This observation suggests that the methyl-directed repair system utilizes the proximal d(GATC) sequence to direct correction. To our knowledge, these experiments represent the first instance in which exonuclease I, exonuclease VII, and RecJ have been implicated in a particular DNA metabolic pathway.