Inverted repeated DNA sequences are common in both prokaryotes and eukaryotes. We found that a plasmid-borne 94 base-pair inverted repeat (a perfect palindrome of 47 bp) containing a poly GT sequence is unstable in S. cerevisiae, with a minimal deletion frequency of about 10(-4)/mitotic division. Ten independent deletions had identical end points. Sequence analysis indicated that all deletions were the result of a DNA polymerase slippage event (or a recombination event) involving a 5-bp repeat (5' CGACG 3') that flanked the inverted repeat. The deletion rate and the types of deletions were unaffected by the rad52 mutation. Strains with the pms1 mutation had a 10-fold elevated frequency of instability of the inverted repeat. The types of sequence alterations observed in the pms1 background, however, were different than those seen in either the wild-type or rad52 genetic backgrounds.