Two DNA strand transfer reactions occur during retroviral reverse transcription. The mechanism of the first, minus strand strong-stop DNA, transfer has been studied in vitro with human immunodeficiency virus 1 reverse transcriptase (HIV-1 RT) and a model template-primer system derived from the HIV-1 genome. The results reveal that HIV-1 RT alone can catalyze DNA strand transfer reactions. Two kinetically distinct ribonuclease (RNase) H activities associated with HIV-1 RT are required for removal of RNA fragments annealed to the nascent DNA strand. Examination of the binding of DNA.RNA duplex and single-stranded RNA to HIV-1 RT during strand transfer supports a model where the enzyme accommodates both the acceptor RNA template and the nascent DNA strand before the transfer event is completed. The polymerase activity incorporated additional bases beyond the 5' end of the RNA template, resulting in a base misincorporation upon DNA strand transfer. Such a process occurring in vivo during retroviral homologous recombination could contribute to the hypermutability of the HIV-1 genome.