Calf thymus DNA polymerase epsilon readily uses short, synthetic oligonucleotides as substrates for both polymerase and exonuclease activity. These substrates were used to examine the mechanism of inhibition by aphidicolin. Aphidicolin competes with each of the four dNTPs for binding to a pol epsilon.DNA complex. Importantly, aphidicolin binds equally well regardless of the identity of the next template base to be replicated (Ki approximately 0.6 microM). Hydrolysis of synthetic templates of defined sequence by the 3'-->5' exonuclease was examined. pol epsilon preferred to hydrolyze single-stranded DNA 3-fold better than double-stranded DNA (Vmax/KM), while under Vmax conditions single-stranded DNA was hydrolyzed 100-fold faster than double-stranded DNA. Aphidicolin did not inhibit exonuclease activity on single-stranded DNA; however, activity on double-stranded DNA was partially inhibited. Formation of an E.[template.primer].aphidicolin ternary complex inhibits exonuclease activity. However, even under conditions where the polymerase site is completely blocked by a template-primer, the exonuclease retains significant activity.