Developmentally controlled genomic deletion-ligations occur during ciliate macronuclear differentiation. We have identified a novel activity in Tetrahymena cell-free extracts that efficiently catalyzes a specific set of intramolecular DNA deletion-ligation reactions. When synthetic DNA oligonucleotide substrates were used, all the deletion-ligation products resembled those formed in vivo in that they resulted from deletions between pairs of short direct repeats. The reaction is ATP-dependent, salt-sensitive, and strongly influenced by the oligonucleotide substrate sequence. The deletion-ligation activity has an apparent size of 200-500 kd, no nuclease-sensitive component, and is highly enriched in cells developing new macronuclei. The temperature inactivation profile of the activity parallels the temperature lethality profile specific for Tetrahymena cells developing new macronuclei. We suggest that this deletion-ligation activity carries out the genomic deletions in developing macronuclei in vivo.