R2 is a non-LTR retrotransposable element that inserts at a specific site in the 28S rRNA genes of most insects. We have expressed the open reading frame of the R2 element from Bombyx mori, R2Bm, in E. coli and shown that it encodes both sequence-specific endonuclease and reverse transcriptase activities. The R2 protein makes a specific nick in one of the DNA strands at the insertion site and uses the 3' hydroxyl group exposed by this nick to prime reverse transcription of its RNA transcript. After reverse transcription, cleavage of the second DNA strand occurs. A similar mechanism of insertion may be used by other non-LTR retrotransposable elements as well as short interspersed nucleotide elements.