MSH1 is a homologue of the Escherichia coli MutS gene that is proposed to play an important role in the repair and maintenance of mitochondrial DNA in Saccharomyces cerevisiae (Reenan, R.A., and Kolodner, R. D. (1992) Genetics 132, 985-1985). In this study, we demonstrate that msh1/MSH1 strains accumulate point mutations in mitochondria seven times faster than the wild-type. We also show that the MSH1 protein is targeted to the mitochondria where its mitochondrial-targeting sequence is removed. Purified MSH1 hydrolyzes ATP and recognizes DNA substrates containing nucleotide mismatches and unpaired nucleotides. The hierarchy of binding affinity of MSH1 among various mismatches is similar to that of MutS, suggesting that both proteins share a highly conserved scheme for recognizing mismatches. The specific binding of MSH1 to mismatches is more resistant to NaCl inhibition and has a slower dissociation rate as compared to the nonspecific binding to complementary DNA sequences. Our data support the idea that MSH1 plays a role in eliminating biosynthetic errors and homeologous recombination in mitochondrial genome by recognizing premutagenic DNA mismatches.