We present a kinetic partitioning mechanism by which the highly efficient 3'----5' exonuclease activity of T7 DNA polymerase maximizes its contribution to replication fidelity with minimal excision of correctly base-paired DNA. The elementary rate constants for the proposed mechanism have been measured directly from single-turnover experiments by using rapid chemical quench-flow techniques. The exonuclease activity of T7 DNA polymerase toward single-stranded DNA is quite fast (kx greater than 700 s-1). This rapid exonuclease is restrained with double-stranded DNA by a kinetic partitioning mechanism that favors the binding of the DNA to the polymerase site to prevent the rapid degradation of matched DNA and yet allows selective removal of mismatched DNAs. Both matched and mismatched DNAs bind tightly to the polymerase site, with approximately equal affinities, Kdp = 20 and 10 nM, respectively. Selective removal of the mismatch is governed by the rate of transfer of the DNA from the polymerase to the exonuclease site (kp----x). The rapid excision of matched DNA is limited by a slow transfer rate (kp----x = 0.2 s-1) from the polymerase to the exonuclease site relative to the rate of polymerization [kp = 300 s-1; Patel et al. (1991) Biochemistry (first of three papers in this issue)]. Removal of mismatched DNA is facilitated by its faster transfer rate (kp----x = 2.3 s-1) to the exonuclease site relative to the slow rate of polymerization over a mismatch [kpi = 0.012 s-1; Wong et al. (1991) Biochemistry (second of three papers in this issue)].(ABSTRACT TRUNCATED AT 250 WORDS)