Restriction endonucleases are widely used in laboratory applications from recombinant DNA technology to diagnostics, but engineering of restriction enzymes by structure-guided design and in vivo directed evolution is at an early stage. Here, we report the use of an in vitro compartmentalization system for completely in vitro selection of restriction enzymes. Compartmentalization of a single gene in a rabbit reticulocyte in vitro transcription/translation system serves to isolate individually synthesized enzymes from each other. In each compartment, an active enzyme cleaves only its own encoding gene, whereas genes encoding inactive enzymes remain intact. Affinity selection of the cleaved DNA encoding active restriction endonucleases was accomplished by the use of streptavidin-immobilized beads and dUTP-biotin, which was efficiently incorporated into the cohesive end of the cleaved DNA using a DNA polymerase. We confirmed that genes encoding active restriction endonuclease FokI could be selected from a randomized library. This method overcomes the limitations of current in vivo technologies and should prove useful for rapid screening and evolution of novel restriction enzymes from diverse mutant libraries, as well as for studies of catalytic and evolutionary mechanisms of restriction enzymes.