DNA double-strand breaks (DSBs) are lethal in eukaryotic cells if left unrepaired. In Saccharomyces cerevisiae the Mre11/Rad50/Xrs2 (MRX) complex is required for repair of DSBs through homologous recombination and nonhomologous end joining. Although Mre11 complexes exhibit 3'[rightwards arrow]5' exonuclease activity and endonuclease activity on DNA hairpin and single-stranded DNA overhang substrates in vitro, the role of the MRX complex in homologous recombination in vivo is not well understood. It has been shown to be specifically required for the processing of protein-conjugated DNA ends at DSBs during meiosis and hairpin-capped DSBs in mitotic cells and has been suggested that the Mre11 nuclease functions to remove damaged DNA ends. Recently, the Sae2 protein has been demonstrated to be involved in hairpin-capped DSBs and DNA end processing along with MRX in vivo. However, the Sae2 protein has no known homologs outside of fungi and no obvious motifs to suggest the function(s) of the Sae2 protein. We have purified recombinant Sae2 and MRX and report that the Sae2 protein itself is a single-stranded DNA endonuclease. The Sae2 protein stimulates the 3[rightwards arrow]5' exonuclease activity of the MRX complex. Also, the MRX complex can stimulate Sae2 nuclease activity to cleave ssDNA adjacent to DNA hairpin structures. The Sae2 protein also binds independently to double-stranded DNA and forms higher order protein-DNA complexes with MRX. These results provide biochemical evidence for functional cooperatively between MRX and Sae2 on DSBs and hairpin-capped DNA ends. / text