Two proteins encoded by bacteriophage T7, the gene 2.5 single-stranded DNA binding protein and the gene 4 helicase, mediate homologous DNA strand exchange. Gene 2.5 protein stimulates homologous base pairing of two DNA molecules containing complementary single-stranded regions. The formation of a joint molecule consisting of circular, single-stranded M13 DNA, annealed to homologous linear, duplex DNA having 3'- or 5'-single-stranded termini of approximately 100 nucleotides requires stoichiometric amounts of gene 2.5 protein. In the presence of gene 4 helicase, strand transfer proceeds at a rate of > 120 nucleotides/s in a polar 5' to 3' direction with respect to the invading strand, resulting in the production of circular duplex M13 DNA. Strand transfer is coupled to the hydrolysis of a nucleoside 5'-triphosphate. The reaction is dependent on specific interactions between gene 2.5 protein and gene 4 protein.