DNA polymerase epsilon (Pol ε) is a multi-subunit B-family DNA polymerase that is involved in leading strand DNA replication in eukaryotes. DNA Pol ε in yeast consists of four subunits, Pol2, Dpb2, Dpb3, and Dpb4. Pol2 is the catalytic subunit and Dpb2, Dpb3, and Dpb4 are the accessory subunits. Pol2 can be further divided into an N-terminal catalytic core (Pol2core) containing both the polymerase and exonuclease active sites and a C-terminus domain. We determined the X-ray crystal structure of Pol2core at 2.2 Å bound to DNA and with an incoming dATP. Pol ε has typical fingers, palm, thumb, exonuclease, and N-terminal domains in common with all other B-family DNA polymerases. However, we also identified a seemingly novel domain we named the P-domain that only appears to be present in Pol ε. This domain partially encircles the nascent duplex DNA as it leaves the active site and contributes to the high intrinsic processivity of Pol ε. To ask if the crystal structure of Pol2core can serve as a model for catalysis by Pol ε, we investigated how the C-terminus of Pol2 and the accessory subunits of Pol ε influence the enzymatic mechanism by which Pol ε builds new DNA efficiently and with high fidelity. Pre-steady state kinetics revealed that the exonuclease and polymerization rates were comparable between Pol2core and Pol ε. However, a global fit of the data over five nucleotide-incorporation events revealed that Pol ε is slightly more processive than Pol2 core. The largest differences were observed when measuring the time for loading the polymerase onto a 3' primer-terminus and the subsequent incorporation of one nucleotide. We found that Pol ε needed less than a second to incorporate the first nucleotide, but it took several seconds for Pol2core to incorporate similar amounts of the first nucleotide. B-family polymerases have evolved an extended β-hairpin loop that is important for switching the primer terminus between the polymerase and exonuclease active sites. The high-resolution structure of Pol2core revealed that Pol ε does not possess an extended β-hairpin loop. Here, we show that Pol ε can processively transfer a mismatched 3' primer-terminus between the polymerase and exonuclease active sites despite the absence of a β-hairpin loop. Additionally we have characterized a series of amino acid substitutions in Pol ε that lead to altered partitioning of the 3'primer-terminus between the two active sites. In a final set of experiments, we investigated the ability of Pol ε to displace the downstream double-stranded DNA while carrying out DNA synthesis. Pol ε displaced only one base pair when encountering double-stranded DNA after filling a gap or a nick. However, exonuclease deficient Pol ε carries out robust strand displacement synthesis and can reach the end of the templates tested here. Similarly, an abasic site or a ribonucleotide on the 5'-end of the downstream primer was efficiently displaced but still only by one nucleotide. However, a flap on the 5'-end of the blocking primer resembling a D-loop inhibited Pol ε before it could reach the double-stranded junction. Our results are in agreement with the possible involvement of Pol ε in short-patch base excision repair and ribonucleotide excision repair but not in D-loop extension or long-patch base excision repair.