We explored the use of recE-mediated homologous recombination to generate molecular diversity in Escherichia coli. Two homologous genes were placed on different phagemid vectors each comprising multiple EcoRI restriction sites and overlapping N- and C-terminal portions of beta-lactamase. By co-infection of these phage into RecE+ EcoRI+ E.coli, we were able to introduce double-strand breaks into these vectors, allowing efficient homologous recombination (in up to 10% of bacteria) by the recE pathway and selection of the recombinants by resistance to ampicillin. Recombination gave single crossovers; these were more frequent near the EcoRI sites and the recombination frequency increased with the target length and degree of homology. The system was used to create a large combinatorial chicken antibody library (10(10)) for display on filamentous phage and to isolate several antibody fragments with binding affinities in the 10-100 nM range.