Micrococcus luteus extracts contain gamma-endonuclease, a Mg2+-independent endonuclease that cleaves gamma-irradiated DNA. This enzyme has been purified approximately 1000-fold, and the purified enzyme was used to study its substrate specificity and mechanism of action. gamma-Endonuclease cleaves DNA containing either thymine glycols, urea residues, or apurinic sites but not undamaged DNA or DNA containing reduced apurinic sites. The enzyme has both N-glycosylase activity that releases thymine glycol residues from OsO4-treated DNA and an associated apurinic endonuclease activity. The location and nature of the cleavage site produced has been determined with DNA sequencing techniques. gamma-Endonuclease cleaves DNA containing thymine glycols or apurinic sites immediately 3' to the damaged or missing base. Cleavage results in a 5'-phosphate terminus and a 3' baseless sugar residue. Cleavage sites can be converted to primers for DNA polymerase I by subsequent treatment with Escherichia coli exonuclease III. The mechanism of action of gamma-endonuclease and its substrate specificity are very similar to those identified for E. coli endonuclease III.