Retroviral DNA integration involves a coordinated set of DNA cutting and joining reactions. Linear viral DNA is cleaved at each 3' end to generate the precursor ends for integration. The resulting recessed 3' ends are inserted into target DNA by a subsequent DNA strand transfer reaction. Purified HIV-1 integration protein carries out both of these steps in vitro. Two novel forms of the dinucleotide cleaved from HIV-1 DNA were identified and one, a cyclic dinucleotide, was used to analyze the stereochemical course of viral DNA cleavage. Both viral DNA cleavage and DNA strand transfer display inversion at chiral phosphorothioates during the course of the reaction. These results suggest that both reactions occur by a one-step mechanism without involvement of a covalent protein-DNA intermediate.