Transposable elements (TEs) have had immense impact on the structure, function and evolution of eukaryotic genomes. The work in this thesis identified Kat1, a novel domesticated DNA transposase of the hAT family in the yeast Kluyveromyces lactis. Kat1 triggers a genome rearrangement that results in a switch of mating type from MATa to MATα. Furthermore, Kat1 acts on sequences that presumably are ancient remnants of a long-lost transposable element. Therefore, Kat1 provides a remarkable example of the intricate relationship between transposable elements and their hosts. We showed that Kat1 generates two DNA double strand breaks (DSBs) in MATa and that the DDE motif and several other conserved amino acid residues are important for Kat1 cleavage activity. DNA hairpins were formed on one end of the DSBs whereas the DNA between the DSBs was joined into a circle. Kat1 was transcriptionally activated by nutrient limitation through the transcription factor Mts1 and negatively regulated by translational frameshifting. In conclusion, Kat1 is a highly regulated domesticated transposase that induces sexual differentiation.  In another study, we developed an assay to measure switching rates in K. lactis and found that the switching rate was ~6x10-4 events/generation. In a genetic screen for mutations that increased mating-type switching, we found mutations in the RAS1 gene. The small GTPase Ras1 regulates cellular cyclic AMP levels and we demonstrated that Mts1 transcription is regulated by the RAS/cAMP pathway and the transcription factor Msn2. Since Ras activity is regulated by nutrient availability, these data likely explains why nutrient limitation induces mating-type switching.