Instability of repetitive sequences, both in intronic sequences and within coding regions, has been demonstrated to be a hallmark of genomic instability in human cancer. Understanding how these mutational events arise may provide an opportunity for prevention or early intervention in cancer development. To study the source of this instability, we have identified a region of the beta-lactamase gene that is tolerant to the insertion of fragments of exogenous DNA as large as 1,614 bp with minimal loss of enzyme activity, as determined by antibiotic resistance. Fragments inserted out-of-frame render Escherichia coli sensitive to antibiotic, and compensatory frameshift mutations that restore the reading frame of beta-lactamase can be selected on the basis of antibiotic resistance. We have utilized this site to insert a synthetic microsatellite sequence within the beta-lactamase gene and selected for mutations yielding frameshifts. This assay provides for detection of one frameshift mutation in a background of 10(6) wild-type sequences. Mismatch repair deficiency increased the observed frameshift frequency approximately 300-fold. Exposure of plasmid containing microsatellite sequences to hydrogen peroxide resulted in frameshift mutations that were localized exclusively to the microsatellite sequences, whereas DNA damage by UV or N-methyl-N'-nitro-N-nitrosoguanidine did not result in enhanced mutagenesis. We postulate that in tumor cells, endogenous production of oxygen free radicals may be a major factor in promoting instability of microsatellite sequences. This beta-lactamase assay may provide a sensitive methodology for the detection and quantitation of mutations associated with the development of cancer.