An early step in the transposition of bacteriophage Mu DNA in vitro is a DNA strand-transfer reaction that generates an intermediate DNA structure in which the Mu donor DNA and the target DNA are covalently joined. DNA replication, initiated at the DNA forks in this intermediate, generates a cointegrate product; simple insert products can also be formed from the same intermediate by degradation of a specific segment of the structure, followed by gap repair. This DNA strand-transfer reaction requires ATP, magnesium, the Mu A and Mu B proteins, and a factor supplied by an Escherichia coli cell extract. We have now shown that the host protein factor requirement can be satisfied by purified protein HU. The defined system has been used to determine the DNA substrate requirements for the reaction. The reaction requires the two Mu ends, located on the same DNA molecule, in the same relative orientation to one another as in the phage Mu genome. To participate in the strand-transfer reaction efficiently the mini-Mu plasmid, used as the transposon donor, must be supercoiled; the target DNA molecule may be supercoiled, relaxed circular, or linear.