Sister chromatid exchange (SCE) frequency is a commonly used index of chromosomal stability in response to environmental or genetic mutagens. However, the mechanism generating cytologically detectable SCEs and, therefore, their prognostic value for chromosomal stability in mitotic cells remain unclear. We examined the role of the highly conserved homologous recombination (HR) pathway in SCE by measuring SCE levels in HR-defective vertebrate cells. Spontaneous and mitomycin C-induced SCE levels were significantly reduced for chicken DT40 B cells lacking the key HR genes RAD51 and RAD54 but not for nonhomologous DNA end-joining (NHEJ)-defective KU70(-/-) cells. As measured by targeted integration efficiency, reconstitution of HR activity by expression of a human RAD51 transgene restored SCE levels to normal, confirming that HR is the mechanism responsible for SCE. Our findings show that HR uses the nascent sister chromatid to repair potentially lethal DNA lesions accompanying replication, which might explain the lethality or tumorigenic potential associated with defects in HR or HR-associated proteins.