The TOP3 gene of the yeast Saccharomyces cerevisiae was postulated to encode a DNA topoisomerase, based on its sequence homology to Escherichia coli DNA topoisomerase I and the suppression of the poor growth phenotype of top3 mutants by the expression of the E. coli enzyme (Wallis, J.W., Chrebet, G., Brodsky, G., Golfe, M., and Rothstein, R. (1989) Cell 58, 409-419). We have purified the yeast TOP3 gene product to near homogeneity as a 74-kDA protein from yeast cells lacking DNA topoisomerase I and overexpressing a plasmid-borne TOP3 gene linked to a phosphate-regulated yeast PHO5 gene promoter. The purified protein possesses a distinct DNA topoisomerase activity: similar to E. coli DNA topoisomerases I and III, it partially relaxes negatively but not positively supercoiled DNA. Several experiments, including the use of a negatively supercoiled heteroduplex DNA containing a 29-nucleotide single-stranded loop, indicate that the activity has a strong preference for single-stranded DNA. A protein-DNA covalent complex in which the 74-kDa protein is linked to a 5' DNA phosphoryl group has been identified, and the nucleotide sequences of 30 sites of DNA-protein covalent complex formation have been determined. These sequences differ from those recognized by E. coli DNA topoisomerase I but resemble those recognized by E. coli DNA topoisomerase III. Based on these results, the yeast TOP3 gene product can formally be termed S. cerevisiae DNA topoisomerase III. Analysis of supercoiling of intracellular yeast plasmids in various DNA topoisomerase mutants indicates that yeast DNA topoisomerase III has at most a weak activity in relaxing negatively supercoiled double-stranded DNA in vivo, in accordance with the characteristics of the purified enzyme.