We have used artificially constructed heteroallelic heteroduplex molecules of bacteriophage lambda DNA to transfect Escherichia coli, and E. coli mutants deficient in various functions involved in the adenine methylation-directed mismatch repair system, MutL, MutS, MutH, and UvrD (MutU). Analysis of the allele content of single infective centers shows that this repair system often acts on several mismatches, separated by as many as 2000 bp, on one of the strands of a heteroduplex molecule. When the methyl-directed mismatch repair system is disabled by mutH or uvrD mutations, localized mismatch repair becomes prominent. This prominent localized repair that can result in separation of very closely linked markers requires the functions MutL and MutS, is independent of adenine methylation, and appears to reflect another mechanism of mismatch repair. Heterology-containing heteroduplex molecules with a deletion in one strand often escape processing. However, when the heterology includes the stem and loop structure of a transposon, Tn10, the transposon is lost.