Survival and genome stability are critical characteristics of healthy cells. DNA palindromes pose a threat to genome stability and have been shown to participate in a reaction leading to the formation of inverted chromosome duplications centered around themselves. There is considerable interest in the mechanism of this rearrangement given its likely contribution to genome instability in cancer cells. This study shows that formation of large inverted chromosome duplications can be observed in the chromosome of Escherichia coli. They are formed at the site of a 246 bp interrupted DNA palindrome in the absence of the hairpin nuclease SbcCD and the recombination protein RecA. The genetic requirements for this spontaneous rearrangement are consistent with a pathway involving DNA degradation and hairpin formation, as opposed to a cruciform cleavage pathway. Accordingly, the formation of palindrome-dependent hairpin intermediates can be induced by an adjacent DNA double-stand break.