DNA added to concentrated extracts of Escherichia coli undergoes a reversible transition to a readily-sedimentable ('condensed') form. The transition occurs over a relatively small increment in extract concentration. The extract appears to play two roles in this transition, supplying both DNA-binding protein(s) and a crowded environment that increases protein binding and favors compact DNA conformations. The two roles of the extract are suggested by properties of fractions prepared by absorption of extracts with DNA-cellulose. The DNA-binding fraction and the DNA-nonbinding fractions from these columns are separately poorer condensing agents than the original extract, but when rejoined are similar to the original extract in the amount required for condensation. The dual role for the extract is supported by model studies of condensation with combinations of purified DNA-binding materials (protein HU or spermidine) and concentrated solutions of crowding agents (albumin or polyethylene glycol 8000); in each case, crowding agents and DNA-binding materials jointly reduce the amounts of each other required for condensation. The condensation reaction as studied in extracts or in the purified systems may be a useful approach to the forces which stabilize the compact form of DNA within the bacterial nucleoid. The effect of condensation on the reactivity of the DNA was measured by changes in the rate of cohesion between duplex DNA molecules bearing the complementary single-strand termini of lambda DNA. Condensation caused large increases in the rates of cohesion of both lambda DNA and of restriction fragments of lambda DNA bearing the cohesive termini. Cohesion products of lambda DNA made in vitro are a mixture of linear and circular aggregates, whereas those made in vivo are cyclic monomers. We suggest a simple mechanism based upon condensation at the site of viral injection which may explain this discrepancy.