Chemotherapeutic regimes involving alkylating agents, such as methylators and crosslinking nitrogen mustards, represent a major risk factor for acute myeloid leukaemia. A high frequency of microsatellite instability and evidence of MSH2 loss in alkylating chemotherapy-related acute myeloid leukaemia (t-AML) suggests that DNA mismatch repair (MMR) dysfunction may be an initiating event in disease evolution. Subsequent accumulation of secondary genetic changes as a result of DNA MMR loss may ultimately lead to the gross chromosomal abnormalities seen in t-AML. Homologous recombination repair (HRR) maintains chromosomal stability by the repair of DNA double-strand breaks, and is therefore a possible target for deregulation in MMR dysfunctional t-AML. In order to test this hypothesis Msh2- proficient and -deficient murine embryonic stem (ES) cells were used to examine the effects of MMR status and methylating agent treatment on cellular expression of DNA double-strand break repair genes. HRR gene expression was significantly deregulated in Msh2 null ES cell clones compared to wild-type clones. Furthermore, some Msh2 null clones expressed high levels of Rad51 specifically, a critical component of HRR. Such Rad51 superexpressing clones were also observed when expression was determined in monocytic myeloid cells differentiated from ES cells. A deregulated HRR phenotype could be partially recapitulated in MMR-competent wild-type cells by treatment with the methylating agent, N-methyl-N-nitrosourea. Furthermore, treatment with melphalan, a leukaemogenic DNA crosslinking chemotherapy nitrogen mustard predicted to elicit HRR, selected against cells with deregulated HRR. These data suggest a t-AML mechanism whereby DNA MMR loss promotes the emergence of HRR gene superexpressing clones, with concomitant chromosomal instability. However, melphalan selection against clones with deregulated HRR suggests that persistence and expansion of unstable clones may require additional genetic alterations that promote cell survival.