Ends-in and ends-out refer to the two arrangements of donor DNA that can be used for gene targeting. Both have been used for targeted mutagenesis, but require donors of differing design. Ends-out targeting is more frequently used in mice and yeast because it gives a straightforward route to replace or delete a target locus. Although ends-in targeting has been successful in Drosophila, an attempt at ends-out targeting failed. To test whether ends-out targeting could be used in Drosophila, we applied two strategies for ends-out gene replacement at the endogenous yellow (y) locus in Drosophila. First, a mutant allele was rescued by replacement with an 8-kb y(+) DNA fragment at a rate of approximately 1/800 gametes. Second, a wild-type gene was disrupted by the insertion of a marker gene in exon 1 at a rate of approximately 1/380 gametes. The I-SceI endonuclease component alone is not sufficient for targeting: the FLP recombinase is also needed to generate the extrachromosomal donor. When both components are used we find that ends-out targeting can be approximately as efficient as ends-in targeting, and is likely to be generally useful for Drosophila gene targeting.