The tau and gamma subunits of the DNA polymerase III holoenzyme of Escherichia coli were each isolated in large quantities as oligomers from overproducing cells in which their genes (dnaZ and X) were under the control of a T7 phage promoter. The 52-kDa gamma subunit (encoded by the dnaZ sequence) contains three-forths of the N-terminal residues of the 71-kDa tau subunit (encoded by the dnaX sequence). Both gamma and tau share a binding site for ATP (or dATP). A DNA-dependent ATPase activity (Lee, S.H., and Walker, J.R. (1987) Proc. Natl. Acad. Sci. U. S. A. 84, 2713-2717) exhibited only by the tau subunit, presumably requires a DNA-binding site in the C-terminal domain lacking in the gamma subunit. Among ATPases dependent on single-stranded DNA, the tau activity is remarkable in the failure of homopolymers (e.g. poly(dA) or poly(dT)) to replace natural DNAs. The presumed need for certain secondary structures may reflect a feature of template binding in the crucial contribution that tau makes to the high processivity of polymerase III holoenzyme. Limited tryptic digestion of tau generates a fragment that resembles gamma in: (i) size, (ii) binding of ATP without ATPase activity, and (iii) a level of complementing holoenzyme activity in extracts of dnaZ-mutant cells that is higher than that of tau.