In Saccharomyces cerevisiae, HOT1-stimulated recombination has been implicated in maintaining homology between repeated ribosomal RNA genes. The ability of HOT1 to stimulate genetic exchange requires RNA polymerase I transcription across the recombining sequences. The trans-acting nuclear mutation hrm3-1 specifically reduces HOT1-dependent recombination and prevents cell growth at 37 degrees . The HRM3 gene is identical to DEG1. Excisive, but not gene replacement, recombination is reduced in HOT1-adjacent sequences in deg1Delta mutants. Excisive recombination within the genomic rDNA repeats is also decreased. The hypo-recombination and temperature-sensitive phenotypes of deg1Delta mutants are recessive. Deletion of DEG1 did not affect the rate of transcription from HOT1 or rDNA suggesting that while transcription is necessary it is not sufficient for HOT1 activity. Pseudouridine synthase 3 (Pus3p), the DEG1 gene product, modifies the anticodon arm of transfer RNA at positions 38 and 39 by catalyzing the conversion of uridine to pseudouridine. Cells deficient in pseudouridine synthases encoded by PUS1, PUS2 or PUS4 displayed no recombination defects, indicating that Pus3p plays a specific role in HOT1 activity. Pus3p is unique in its ability to modulate frameshifting and readthrough events during translation, and this aspect of its activity may be responsible for HOT1 recombination phenotypes observed in deg1 mutants.