3'-Azido-3'-deoxythymidine (AZT) is currently used in the treatment of patients with the acquired immunodeficiency syndrome (AIDS); this often, however, results in hematological toxicity. Although the mechanism of toxicity is not clear, it is thought to result in part from incorporation of AZT into DNA, which causes chain termination. In order to investigate the mechanism of AZT toxicity, the relationship between the presence of AZT in DNA of K562 cells, a chronic myelogenous leukemia cell line, and growth inhibition was examined. No growth inhibition was evident at less than 50 microM AZT, although incorporation of AZT into DNA was detected at 10 and 20 microM. This suggested that the presence of AZT in DNA was not sufficient to inhibit cell growth. Removal of AZT from the medium resulted in the removal of AZT from DNA of the cells, indicative of a cellular repair mechanism. Cellular DNA polymerases alpha, beta, gamma, and delta from human leukemic cells were inhibited by AZT trisphosphate to different degrees, polymerase alpha being the least potently inhibited. Furthermore, an enzyme with exonucleolytic activity, capable of removing AZT and dideoxycytidine from the correspondingly terminated DNA (in vitro), was obtained from these cells. In summary, AZT was incorporated into DNA at levels that were not toxic, and it could be removed by an exonuclease, which might play a key role in the susceptibility of cells to AZT.