The cloning of DNA fragments to plasmid vectors is at the heart of molecular biology. Recent developments have led to various methods utilizing homologous recombination of homology arms. Among them, Seamless Ligation Cloning Extract (SLiCE) is an affordable alternative solution that uses simple Escherichia coli lysates. However, the underlying molecular mechanisms remain unclear and the reconstitution of the extract by defined factors has not yet been reported. We herein show that the key factor in SLiCE is Exonuclease III (ExoIII), a double‐strand (ds) DNA‐dependent 3′‐5′ exonuclease, encoded by XthA. SLiCE prepared from the xthAΔ strain is devoid of recombination activity, whereas purified ExoIII alone is sufficient to assemble two blunt‐ended dsDNA fragments with homology arms. In contrast to SLiCE, ExoIII is unable to digest (or assemble) fragments with 3′ protruding ends; however, the addition of single‐strand DNA‐targeting Exonuclease T overcomes this issue. Through the combination of commercially available enzymes under optimized conditions, we achieved the efficient, reproducible, and affordable cocktail, “XE cocktail,” for seamless DNA cloning. By reducing the cost and time required for DNA cloning, researchers will devote more resources to advanced studies and the careful validation of their own findings.