Mature DNA from phage T3 or T7 is a linear duplex DNA with direct repeats at its ends known as "terminally redundant sequences." The DNA of these phages is synthesized as concatemers in which unit length molecules are joined together in a head-to-tail fashion through the terminally redundant sequences and processed to form mature DNA with coupling to DNA packaging. When linearized plasmid DNA carrying a concatemer joint, a terminally redundant sequence and its flanking sequences from the concatemer, was incubated in a defined in vitro system for packaging T3 DNA, composed of purified proheads and packaging proteins (gp 18 and gp 19), DNA was cleaved at the left end of the terminally redundant sequence. The cleavage reaction required all factors necessary for DNA packaging. The DNA fragment with the left end was preferentially protected from DNase I digestion, indicating that the cleavage reaction occurs at the left end of the terminally redundant sequence in the concatemer when DNA is packaged leftward, corresponding to the direction from the right to the left end of the T3 genome. The cleavage reaction was stimulated by high concentrations of NaCl and ATP, a condition in which DNA translocation into the head is slowed down. The cleavage reaction was not specific between T3 and T7. The right end of the concatemer joint was not required for cleavage at the left end. In the absence of ATP, DNA was extensively degraded by gp 19. gp 19 by itself had nonspecific endonuclease activity, making double-stranded breaks. The activity was inhibited by either ATP or gp 18.