Ty3, a retroviruslike element in Saccharomyces cerevisiae, encodes an integrase (IN) which is essential for position-specific transposition. The Ty3 integrase contains the highly conserved His-Xaa(3-7)-His-Xaa(23-32)-Cys-Xaa(2)-Cys and Asp, Asp-Xaa(35)-Glu [D,D(35)E] motifs found in retroviral integrases. Mutations were introduced into the coding region for the Ty3 integrase to determine the effects in vivo of changes in conserved residues of the putative catalytic triad D,D(35)E and the nonconserved carboxyl-terminal region. Ty3 viruslike particles were found to be associated with significant amounts of linear DNA of the approximate size expected for a full-length reverse transcription product and with plus-strand strong-stop DNA. The full-length, preintegrative DNA has at each 3' end 2 bp that are removed prior to or during integration. Such 3'-end processing has not been observed for other retroviruslike elements. A mutation at either D-225 or E-261 of the Ty3 integrase blocked transposition and prevented processing of the 3' ends of Ty3 DNA in vivo, suggesting that the D,D(35)E region is part of the catalytic domain of Ty3 IN. Carboxyl-terminal deletions of integrase caused a dramatic reduction in the amount of Ty3 DNA in vivo and a decrease in reverse transcriptase activity in vitro but did not affect the apparent size or amount of the 55-kDa reverse transcriptase in viruslike particles. The 115-kDa viruslike particle protein, previously shown to react with antibodies to Ty3 integrase, was shown to be a reverse transcriptase-IN fusion protein. These results are consistent with a role for the integrase domain either in proper folding of reverse transcriptase or as part of a heterodimeric reverse transcriptase molecule.