The heterodimeric complex ERCC1-XPF is a structure-specific endonuclease responsible for the 5' incision during mammalian nucleotide excision repair (NER). Additionally, ERCC1-XPF is thought to function in the repair of interstrand DNA cross-links and, by analogy to the homologous Rad1-Rad10 complex in Saccharomyces cerevisiae, in recombination between direct repeated DNA sequences. To gain insight into the role of ERCC1-XPF in such recombinational processes and in the HER reaction, we studied in detail the DNA structural elements required for ERCC1-XPF endonucleolytic activity. Recombinant ERCC1-XPF, purified from insect cells, was found to cleave stem- loop substrates at the DNA junction in the absence of other proteins like replication protein A, showing that the structure-specific endonuclease activity is intrinsic to the complex. Cleavage depended on the presence of divalent cations and was optimal in low Mn2+ concentrations (0.2 mR). A minimum of 4-8 unpaired nucleotides was required for incisions by ERCC1-XPF. Splayed arm and flap substrates were also cut by ERCC1-XPF, resulting in the removal of 3' protruding single-stranded arms. All incisions occurred in one strand of duplex DNA at the 5' side of a junction with single-stranded DNA. The exact cleavage position varied from 2 to 8 nucleotides away from the junction. One single-sanded arm, protruding either in the 3' or 5' direction, was necessary and sufficient for correct positioning of incisions by ERCC1- XPF. Our data specify the engagement of ERCC1-XPF in NER and allow a more direct search for its specific role in recombination.