Circular heteroduplex DNA molecules introduced into Escherichia coli-competent cells are converted to new recombinant plasmids as a result of enzymatic actions in vivo. A pair of plasmids with partial sequence homology were each linearized at a different position with restriction enzymes, and the termini were made flush with the single-strand-specific S1 nuclease. Duplex molecules were then formed by melting and annealing these plasmid DNAs together. In contrast to linear homoduplex molecules, heteroduplexes circularize and therefore transform E. coli efficiently. Unique DNA sequences on each of the parental strands in the transforming heteroduplexes can be selectively incorporated or deleted as a result of in vivo enzymatic activities in transformed cells. This method permits the generation of new recombinant sequences in vivo without relying solely on the presence of convenient restriction sites for manipulation of DNA fragments in vitro.