Intrachromosomal gene conversion has not shown a strong association with reciprocal exchanges. However, reciprocal exchanges do occur between intrachromosomal repeats. To understand the relationship between reciprocal exchange and gene conversion in repeated sequences the recombination behavior of an inverted repeat was studied. We have found that in one orientation a single copy of the kanr gene of the bacterial transposon Tn903 flanked by part of the inverted repeats IS903 does not give G418 resistance in Saccharomyces cerevisiae. A reciprocal exchange in the IS903 repeats inverts the kanr gene, which then gives G418 resistance in a single copy. Using this as a selection for intrachromosomal reciprocal exchange we have introduced multiple restriction site heterologies into the IS903 repeats and examined the crossover products for associated gene conversions. Approximately 50% of crossovers, both in mitosis and meiosis, were associated with a gene conversion. This suggests that these crossovers result from an intermediate that gives a gene conversion in 50% of the events, that is, both reciprocal exchange and gene conversion between repeated sequences have a common origin. The data are most consistent with a heteroduplex mismatch repair mechanism.