Gene targeting through homologous recombination in murine embryonic stem (ES) cells is already strongly suppressed by DNA mismatch-repair (MMR)-dependent anti-recombination when targeting construct and target locus differ at <1% of the nucleotide positions. We demonstrate that MMR activity also raises a strong impediment to gene modification mediated by small synthetic DNA oligonucleotide sequences. In the absence of the DNA MMR gene MSH2, synthetic single-stranded deoxyribo-oligonucleotides can be used to site-specifically modify the ES cell genome. We show that PCR-based procedures can be used to identify and clone modified cells. By this method we have substituted a single codon in the retinoblastoma gene.