Recent crystallographic studies of phi29 DNA polymerase have provided structural insights into its strand displacement and processivity. A specific insertion named terminal protein region 2 (TPR2), present only in protein-primed DNA polymerases, together with the exonuclease, thumb, and palm subdomains, forms two tori capable of interacting with DNA. To analyze the functional role of this insertion, we constructed a phi29 DNA polymerase deletion mutant lacking TPR2 amino acid residues Asp-398 to Glu-420. Biochemical analysis of the mutant DNA polymerase indicates that its DNA-binding capacity is diminished, drastically decreasing its processivity. In addition, removal of the TPR2 insertion abolishes the intrinsic capacity of phi29 DNA polymerase to perform strand displacement coupled to DNA synthesis. Therefore, the biochemical results described here directly demonstrate that TPR2 plays a critical role in strand displacement and processivity.