A DNA sequence (HOT1) from the repeated ribosomal RNA gene cluster of Saccharomyces cerevisiae can stimulate genetic exchange when inserted at novel locations in the yeast genome. Localization of the sequences required for HOT1 activity demonstrates that two noncontiguous fragments of DNA are required for the stimulation of recombination. One of these fragments contains the transcription initiation site for the major 35S ribosomal RNA precursor. The other contains an enhancer of RNA polymerase I transcription. We suggest that transcription by RNA polymerase I initiating in the inserted rDNA and proceeding through the adjacent sequences is responsible for the stimulation of exchange. Consistent with this interpretation, insertion of the putative termination site for RNA polymerase I transcription between HOT1 and the adjacent recombining DNA abolishes the recombination stimulation. Transcription through both copies of the homologous recombining sequences appears to be necessary for enhanced exchange.