Antigen receptor genes are assembled during lymphoid development by a specialized recombination reaction normally observed only in cells of the vertebrate immune system. Here, we show that expression in Saccharomyces cerevisiae of murine RAG1 and RAG2, the lymphoid-specific components of the V(D)J recombinase, is sufficient to induce V(D)J cleavage and rejoining in this lower eukaryote. The RAG proteins cleave recombination substrates introduced into yeast cells, generating signal ends that can be joined to form signal joints. These signal joints are precise, as in mammalian cells, and their formation is dependent on a yeast nonhomologous end-joining protein, the XRCC4 homolog LIF1. Moreover, joining of SmaI-generated blunt ends is generally imprecise in the yeast strain used here, suggesting that the RAG proteins influence signal-end joining. Cleaved signal ends are also transposed into new sites in DNA, allowing RAG-induced transposition to be studied in vivo.