phi 29 DNA replication is initiated by the formation of a covalent complex between the viral-coded terminal protein and dAMP (TP-dAMP). This initiation reaction system has been reconstituted from two phage-encoded proteins, the terminal protein and DNA polymerase. The phi 29 DNA polymerase was purified from phage-infected cells by using poly(dA) X p(dT)12-18 as an assay template. The purified polymerase has an apparent molecular mass of 68 kDa in its native form and it appears to function as a monomer. The terminal protein was purified to homogeneity from Escherichia coli cells harboring a cloned plasmid that contained a phi 29 gene 3 segment. The molecular mass of the purified terminal protein was about 30 kDa in both the denatured and the native form. The protein apparently functions as a monomer. When the terminal protein and DNA polymerase were incubated in the presence of dATP, Mg2+, and phi 29 DNA-protein as template, the terminal protein bound covalently to dAMP. This reaction did not require ATP. In addition, these two purified fractions catalyzed DNA chain elongation from both ends of phi 29 DNA, yielding the expected 9- to 12-base fragment when assayed in the presence of 2',3'-dideoxycytidine triphosphate. These results indicate that phi 29 DNA polymerase catalyzes formation of the terminal protein-dAMP complex and can also catalyze chain elongation at least 9-12 bases from both ends of phi 29 DNA.