Proteolysis of MutY with trypsin indicated that this DNA mismatch repair enzyme could exist as two modules and that the N-terminal domain (Met1-Lys225), designated as p26, could serve as the catalytic domain [Manuel et al. (1996) J. Biol. Chem. 271, 16218-16226]. In this study, the p26 domain has been cloned, overproduced, and purified to homogeneity. Synthetic DNA duplexes containing mismatches, generated with regular bases and nucleotide analogs containing altered functional groups, have been used to characterize the substrate specificity and mismatch repair efficiency of p26. In general, p26 recognized and cleaved most of the substrates which were catalyzed by the intact protein. However, p26 displayed enhanced specificity for DNA containing an inosine. guanine mismatch, and the specificity constant (Kcat/Km) was 2-fold higher. The truncated MutY was able to cleave DNA containing an abasic site with equal efficiency. Dissociation constants (Kd) were obtained for p26 on noncleavable DNA substrates containing a tetrahydrofuran (abasic site analog) or a reduced abasic site. p26 bound these substrates with high specificity, and the Kd values were 3-fold higher when compared to the intact MutY. p26 contains both DNA glycosylase and AP lyase activities, and we provide evidence for a reaction mechanism that proceeds through an imino intermediate. Thus, we have shown for the first time that deletion of 125 amino acids at the C-terminus of MutY generates a stable catalytic domain which retains the functional identity of the intact protein.