Chromosomal rearrangements occur in all organisms and are important both in the evolution of species and in pathology. In this dissertation I show that in Saccharomyces cerevisiae, or budding yeast, one type of chromosomal rearrangement occurs when inverted repeats fuse, likely during DNA replication by a novel mechanism termed "faulty template switching". This fusion can lead to the formation of either a dicentric or acentric chromosome, depending on the direction of the replication fork. Dicentric chromosomes are inherently unstable due to their abnormal number of centromeres, and thus undergo additional chromosomal rearrangements and chromosome loss.