Mutations in the mismatch repair (MMR) genes hMSH2 and hMLH1 have been associated with hereditary nonpolyposis colorectal cancer. Tumor cell lines that are deficient in MMR exhibit a high mutation rate, a defect in the response to certain types of DNA damage and in transcription-coupled repair, as well as an increase in the rate of gene amplification. We show here that hMSH2-deficient tumor cell lines lost most of their ability to accurately repair plasmid DNA double-strand breaks (DSBs) by homologous recombination, compared with MMR-proficient or hMLH1-deficient tumor cell lines. In all of these cell lines, DSB repair occurred almost exclusively by nonreciprocal homologous recombination: gene conversion (GC). However, there were two types of GC products: precise and rearranged. The rearranged products contained deletions or insertions of sequences and represented GC intermediates trapped at various stages and shunted to nonhomologous end joining. In MMR-proficient or MLH1-deficient cells, >50% of GC products were of the precise type, whereas in two MSH2-deficient backgrounds, this proportion decreased to 8%, whereas that of rearranged GC products increased by 2-fold. These results seem to predict a novel way by which MSH2-deficiency could promote mutation: deletion or insertion mutations associated with DSB repair, which may also contribute to cancer predisposition.