Immunoglobulin and T-cell-receptor genes are assembled from component gene segments in developing lymphocytes by a site-specific recombination reaction, V(D)J recombination, The proteins encoded by the recombination-activating genes, RAG1 and RAG2, are essential in this reaction, mediating sequence-specific DNA recognition of well-defined recombination signals and DNA cleavage next to these signals. Here we show that RAG1 and RAG2 together form a transposase capable of excising a piece of DNA containing recombination signals from a donor site and inserting it into a target DNA molecule. The products formed contain a short duplication of target DNA Immediately flanking the transposed fragment, a structure like that created by retroviral integration and all known transposition reactions. The results support the theory that RAG1 and RAG2 were once components of a transposable element, and that the split nature of Immunoglobulin and T-cell-receptor genes derives from germline insertion of this element into an ancestral receptor gene soon after the evolutionary divergence of jawed and jawless vertebrates.