The dual function mammalian DNA repair enzyme, polynucleotide kinase (PNK), facilitates strand break repair through catalysis of 5'-hydroxyl phosphorylation and 3'-phosphate dephosphorylation. We have examined the relative activities of the kinase and phosphatase functions of PNK using a novel assay, which allows the simultaneous characterization of both activities in processing nicks and gaps containing both 3'-phosphate and 5'-hydroxyl. Under multiple turnover conditions the phosphatase activity of the purified enzyme is significantly more active than its kinase activity. Consistent with this result, phosphorylation of the 5'-hydroxyl is rate limiting in cell extract mediated-repair of a nicked substrate. On characterizing the effects of individually mutating the two active sites of PNK we find that while site-directed mutagenesis of the kinase domain of PNK does not affect its phosphatase activity, disruption of the phosphatase domain also abrogates kinase function. This loss of kinase function requires the presence of a 3'-phosphate, but it need not be present in the same strand break as the 5'-hydroxyl. PNK preferentially binds 3'-phosphorylated substrates and DNA binding to the phosphatase domain blocks further DNA binding by the kinase domain.