Two classes of plasmids in addition to the parent become apparent when plasmids that contain direct repeats of IS1 downstream from a promoter are used to transform an Escherichia coli strain that does not contain IS1. One class of plasmids has deleted sequences from the end of IS1 to nonrandom sites within the plasmid. The appearance of these plasmids in the population requires intact insA and insB reading frames, but not insC. The other class of plasmids has undergone an exchange within the direct repeats of IS1 on the plasmid. Their appearance requires InsC but neither InsA nor InsB. The two reactions may represent two distinguishable steps in IS1 transposition. The InsC-catalyzed exchange is independent of RecA and resembles homologous recombination since the frequency of recombinants arising from exchanges in different regions of IS1 appears to be roughly proportional to the size of the region. InsC can also catalyze an exchange between direct repeats of non-IS1 DNA.