Single molecule analysis reveals three phases of DNA degradation by an exonuclease

λ exonuclease degrades one strand of duplex DNA in the 5’-3’ direction to generate a 3’ overhang required for recombination. Its ability to hydrolyze thousands of nucleotides processively is attributed to its ring structure and most studies have focused on the processive phase. Here, we use single molecule FRET to reveal three phases of λ exonuclease reactions: initiation, distributive and processive phases. The distributive phase occurs at early reactions where the 3’ overhang is too short for a stable engagement with the enzyme. A mismatched base is digested five times slower than a Watson-Crick paired base and concatenating multiple mismatches has a cooperatively negative effect, highlighting the crucial role of basepairing in aligning the 5’ end toward the active site. The rate-limiting step during processive degradation appears to be the post-cleavage melting of the terminal base pair. We also found that an escape from a known pausing sequence requires enzyme backtracking.