Plasmids containing heteroallelic copies of the Saccharomyces cerevisiae HIS3 gene undergo intramolecular gene conversion in mitotically dividing S. cerevisiae cells. We have used this plasmid system to determine the minimum amount of homology required for gene conversion, to examine how conversion tract lengths are affected by limited homology, and to analyze the role of flanking DNA sequences on the pattern of exchange. Plasmids with homologous sequences greater than 2 kilobases have mitotic exchange rates as high as 2 x 10(-3) events per cell per generation. As the homology is reduced, the exchange rate decreases dramatically. A plasmid with 26 base pairs (bp) of homology undergoes gene conversion at a rate of approximately 1 x 10(-10) events per cell per generation. These studies have also shown that an 8-bp insertion mutation 13 bp from a border between homologous and nonhomologous sequences undergoes conversion, but that a similar 8-bp insertion 5 bp from a border does not. Examination of independent conversion events which occurred in plasmids with heteroallelic copies of the HIS3 gene shows that markers within 280 bp of a border between homologous and nonhomologous sequences undergo conversion less frequently than the same markers within a more extensive homologous sequence. Thus, proximity to a border between homologous and nonhomologous sequences shortens the conversion tract length.