Vaccinia virus DNA ligase has an intrinsic nick-sensing function. The enzyme discriminates at the substrate binding step between a DNA containing a 5' phosphate and a DNA containing a 5' hydroxyl at the nick. Further insights into nick recognition and catalysis emerge from studies of the active-site mutant K231A, which is unable to form the covalent ligase-adenylate intermediate and hence cannot activate a nicked DNA substrate via formation of the DNA-adenylate intermediate. Nonetheless, K231A does catalyze phosphodiester bond formation at a preadenylated nick. Hence, the active-site lysine of DNA ligase is not required for the strand closure step of the ligation reaction. The K231A mutant binds tightly to nicked DNA-adenylate but has low affinity for a standard DNA nick. The wild-type vaccinia virus ligase, which is predominantly ligase-adenylate, binds tightly to a DNA nick. This result suggests that occupancy of the AMP binding pocket of DNA ligase is essential for stable binding to DNA. Sequestration of an extrahelical nucleotide by DNA-bound ligase is reminiscent of the base-flipping mechanism of target-site recognition and catalysis used by other DNA modification and repair enzymes.