V(D)J recombination is a DNA rearrangement that assembles functional immunoglobulin and T cell receptor genes in lymphoid cells, and is essential for generating the diversity of the immune response. The reaction is known to occur in two stages. In the first stage, the RAG1 and RAG2 proteins cooperate to make specific double-strand breaks at the target sites. The later steps, which join the broken ends in new combinations, are known to be relatively non-specific and to share many protein factors with DNA double-strand break repair. We have recently found an entirely different process catalyzed by the purified RAG proteins, in which the broken ends of the DNA recognition sequences are covalently inserted into unrelated DNA. This is a transpositional recombination in all ways equivalent to the jumping of classical transposons into new DNA sites, or to the chromosomal integration of retroviral DNA. This novel reaction has broad implications for the immune system. First, it may help to explain the evolutionary origin of the variable immune response. It has been noted earlier that immune diversity, the DNA recognition sequences, and the RAG genes appear together at the level of the jawed vertebrates (e.g. sharks), without a trace of any component in lower organisms. This had led to the suggestion of a transpositional jump that brought in both the RAG genes and their recognition sequences at the same time (from an unknown organism), but until now the suggestion had been purely speculative. Now it is a plausible mechanism. Second, ongoing transpositional events in lymphoid cells may explain some of the chromosomal translocations that lead to lymphoid tumors. Many of these translocations are known to be linked with RAG gene expression, but to differ from V(D)J recombination in that one DNA site has no similarity to the recognition sequence. A transpositional attack by a broken end from an immunoglobulin or T cell receptor locus would have the correct properties to account for these events.