Using the single-stranded circular DNA of bacteriophage fd as template, double-stranded circular DNA has been prepared in vitro with either 5-hydroxymethylcytosine ([hmdC]DNA) or cytosine ([dC]DNA) in the product strand. Extracts prepared from Escherichia coli cells restrictive to T-even phage containing nonglucosylated DNA degrade [hmdC]DNA to acid-soluble material in vitro, but do not degrade [dC]dna. In contrast, extracts prepared from E. coli K12 rglA- rglB-, a strain permissive to T-even phage containing nonglucosylated DNA, do not degrade [hmdC]DNA or [dC]DNA. In addition, glucosylation of the [hmdC]DNA renders it resistant to degradation by extracts from restrictive strains. The conversion of [hmdC]DNA to acid-soluble material in vitro consists of an HmCyt-specific endonucleolytic cleavage requiring the presence of the RglB gene product to form a linear molecule, followed by a non-HmCyt-specific hydrolysis of the linear DNA to acid-soluble fragments, catalyzed in part by exonuclease V. The RglB protein present in extracts of E. coli K12 rglA- rglB+ has been purified 200-fold by complementation with extracts from E. coli K12 rglA- rglB-. The purified RglB protein does not contain detectable HmCyt-specific endonuclease or exonuclease activity. In vitro endonucleolytic cleavage of [hmdC]DNA thus requires additional factors present in cell extracts.