The digestion mechanism and substrate specificity of the 3' to 5' exonuclease associated with calf thymus DNA polymerase epsilon have been examined. The use of single-molecule mismatched DNA substrates has allowed further characterization of the structural substrate requirements of the nonprocessive exonucleolytic activity of DNA polymerase epsilon. The digestion characteristics of these substrates demonstrated that a single-stranded segment 5' to the double-stranded complementary region is not a prerequisite for efficient exonucleolytic degradation of the mismatched single-stranded segment at the 3' end of the molecule. In contrast to the known inhibitory effect of DNA polymerase activity at moderate concentration of monovalent ions, the distribution of digestive products was virtually unaffected by the addition of 80 mM KCl to the reaction. Aphidicolin, an inhibitor of DNA polymerase activity, also inhibits exonucleolytic activity on substrates containing a terminal mismatch, while little effect is observed for the digestion of single-stranded DNA substrates. However, if a long terminal mismatched DNA substrate is used to mimic the structure of a single-stranded DNA molecule, the extent of digestion is significantly decreased by the addition of aphidicolin. Inhibition of the digestion of single-stranded DNA by aphidicolin is also observed if a double-stranded complementary region with a 3' single-stranded DNA segment is added to the reaction. These results indicate that aphidicolin inhibits exonuclease activity by sequestering the enzyme to a portion of mismatched DNA molecules away from the site where the exonuclease must act. Additionally, they demonstrate that, although the polymerase and exonuclease active sites are structurally linked, polymerase function is not a necessary requirement for exonuclease function.