Extracts of Drosophila embryos contain an enzymatic activity that converts circular DNAs into huge networks of catenated rings in an ATP-dependent fashion. The catenated activity is resolved into two protein components during purification. One component is a novel DNA topoisomerase that requires the presence of ATP in order to relax supercoiled DNA. We have shown that the ATP-dependent DNA topoisomerase relaxes DNA by a mechanism distinct from that of nicking-closing enzymes. The Drosophila ATP-dependent topoisomerase allows one segment of a circular DNA to pass through transient breaks in both strands at another site on the DNA circle without any relative rotation between the ends at the transient break. This mechanism can convert negative supertwists to positive twists and vice versa until a relaxed equilibrium state is reached. The formation of catenated rings is mediated by an analogous bimolecular reaction which can occur between two nonhomologous DNA circles. The catenation reaction is fully reversible: in the presence of the second protein component, circular DNA is converted quantitatively into catenated forms; in its absence, the ATP-dependent topoisomerase resolves catenated networks back into monomer circles. The Drosophila ATP-dependent topoisomerase appears to be closely related to E. coli DNA gyrase in that both use a similar mechanism to change the topology of DNA, both require ATP and both are inhibited by the antibiotic novobiocin. The presence of an enzyme that allows one DNA helix to pass freely through another could not only be useful in relaxation of topological constraints, but also may be involved in the folding and unfolding of eucaryotic chromosomes.