BLM is a RecQ family helicase that is defective in individuals with the cancer predisposition disorder, Bloom's syndrome (BS). At the cellular level, BS is characterized by hyper-recombination manifested as excessive sister chromatid exchange and loss of heterozygosity. However, the precise function of BLM remains unclear. Multiple roles have been proposed for BLM in the homologous recombination (HR) repair pathway, including 'early' functions, such as the stimulation of resection of DNA double-strand break ends or displacement of the invading strand of DNA displacement loops, and 'late' roles, such as dissolution of double Holliday junctions. However, most of the evidence for these putative roles comes from in vitro biochemical data. In this study, we report the characterization of mouse embryonic stem cells with disruption of Blm and/or Rad54 genes. We show that Blm has roles both upstream and downstream of the Rad54 protein, a core HR factor. Disruption of Rad54 in the Blm-mutant background reduced the elevated level of gene targeting and of sister chromatid exchanges, implying that Blm primarily functions downstream of Rad54 in the HR pathway. Conversely, however, mutation of Blm in Rad54(-/-) cells rescued their mitomycin C (MMC) sensitivity, and decreased both the level of DNA damage and cell cycle perturbation induced by MMC, suggesting an early role for Blm. Our data are consistent with Blm having at least two roles in HR repair in mammalian cells.