Vaccinia topoisomerase forms a covalent protein-DNA intermediate at sites containing the sequence 5'-CCCTT. The T nucleotide is linked via a 3'-phosphodiester bond to Tyr-274 of the enzyme. Here, we report that the enzyme catalyzes hydrolysis of the covalent intermediate, resulting in formation of a 3'-phosphate-terminated DNA cleavage product. The hydrolysis reaction is pH-dependent (optimum pH = 9.5) and is slower, by a factor of 10(-5), than the rate of topoisomerase-catalyzed strand transfer to a 5'-OH terminated DNA acceptor strand. Mutants of vaccinia topoisomerase containing serine or threonine in lieu of the active site Tyr-274 form no detectable covalent intermediate and catalyze no detectable DNA hydrolysis. This suggests that hydrolysis occurs subsequent to formation of the covalent protein-DNA adduct and not via direct attack by water on DNA. Vaccinia topoisomerase also catalyzes glycerololysis of the covalent intermediate. The rate of glycerololysis is proportional to glycerol concentration and is optimal at pH 9.5.