Gene targeting by single-stranded oligodeoxyribonucleotides (ssODNs) is a promising technique for introducing site-specific sequence alterations without affecting the genomic organization of the target locus. Here, we discuss the significant progress that has been made over the last 5 years in unraveling the mechanisms and reaction parameters underlying ssODN-mediated gene targeting. We will specifically focus on ssODN-mediated gene targeting in murine embryonic stem cells (ESCs) and the impact of the DNA mismatch repair (MMR) system on the targeting process. Implications of novel findings for routine application of ssODN-mediated gene targeting and challenges that need to be overcome for future therapeutic applications are highlighted.