MuB protein, an ATP-dependent DNA-binding protein, collaborates with Mu transposase to promote efficient transposition. MuB binds target DNA, delivers this target DNA segment to transposase and activates transposase's catalytic functions. Using ATP-bound, ADP-bound and ATPase-defective MuB proteins we investigated how nucleotide binding and hydrolysis control the activities of MuB protein, important for transposition. We found that both MuB-ADP and MuB-ATP stimulate transposase, whereas only MuB-ATP binds with high affinity to DNA. Four different ATPase-defective MuB mutants fail to activate the normal transposition pathway, further indicating that ATP plays critical regulatory roles during transposition. These mutant proteins fall into two classes: class I mutants are defective in target DNA binding, whereas class II mutants bind target DNA, deliver it to transposase, but fail to promote recombination with this DNA. Based on these studies, we propose that the switch from the ATP- to ADP-bound form allows MuB to release the target DNA while maintaining its stimulatory interaction with transposase. Thus, ATP-hydrolysis by MuB appears to function as a molecular switch controlling how target DNA is delivered to the core transposition machinery.