Loss of DNA mismatch repair due to mutation or diminished expression of the MLH1 gene is associated with genome instability and cancer. In this study, we used a yeast model system to examine three circumstances relevant to modulation of MLH1 function. First, overexpression of wild-type MLH1 was found to cause a strong elevation of mutation rates at three different loci, similar to the mutator effect of MLH1 gene inactivation. Second, haploid yeast strains with any of six mlh1 missense mutations that mimic germ line mutations found in human cancer patients displayed a strong mutator phenotype consistent with loss of mismatch repair function. Five of these mutations affect amino acids that are homologous to residues suggested by recent crystal structure and biochemical analysis of Escherichia coli MutL to participate in ATP binding and hydrolysis. Finally, using a highly sensitive reporter gene, we detected a mutator phenotype of diploid yeast strains that are heterozygous for mlh1 mutations. Evidence suggesting that this mutator effect results not from reduced mismatch repair in the MLH1/mlh1 cells but rather from loss of the wild-type MLH1 allele in a fraction of cells is presented. Exposure to bleomycin or to UV irradiation strongly enhanced mutagenesis in the heterozygous strain but had little effect on the mutation rate in the wild-type strain. This damage-induced hypermutability may be relevant to cancer in humans with germ line mutations in only one MLH1 allele.