Inverted repeats of DNA are widespread in the genomes of eukaryotes and prokaryotes and can mediate genome rearrangement. We studied rearrangement mediated by plasmid-borne inverted repeats in Escherichia coli. We show that inverted repeats can mediate an efficient and recA-independent recombination event. Surprisingly, the product of this recombination is not that of simple inversion between the inverted repeats, but almost exclusively an unusual head-to-head dimer with complex DNA rearrangement. Moreover, this recombination is dramatically reduced by increasing the distance separating the repeats. These results can be readily explained by a model involving reciprocal switching of the leading and lagging strands of DNA replication within the inverted repeats, which leads to the formation of a Holliday junction. Reciprocal strand switching during DNA replication might be a common mechanism for genome rearrangement associated with inverted duplication.