The integrase of the Saccharomyces cerevisiae retrotransposon Ty1 integrates Ty1 cDNA into genomic DNA likely via a transesterification reaction. Little is known about the mechanisms ensuring that integrase does not integrate non-Ty DNA fragments. In an effort to elucidate the conditions under which Ty1 integrase accepts non-Ty DNA as substrate, PCR fragments encompassing a selectable marker gene were transformed into yeast strains overexpressing Ty1 integrase. These fragments do not exhibit similarity to Ty1 cDNA except for the presence of the conserved terminal dinucleotide 5'-TG-CA-3'. The frequency of fragment insertion events increased upon integrase overexpression. Characterization of insertion events by genomic sequencing revealed that most insertion events exhibited clear hallmarks of integrase-mediated reactions, such as 5 bp target site duplication and target site preferences. Alteration of the terminal dinucleotide abolished the suitability of the PCR fragments to serve as substrates. We hypothesize that substrate specificity under normal conditions is mainly due to compartmentalization of integrase and Ty cDNA, which meet in virus-like particles. In contrast, recombinant integrase, which is not confined to virus-like particles, is able to accept non-Ty DNA, provided that it terminates in the proper dinucleotide sequence.