The MutLalpha heterodimer formed by mismatch repair (MMR) proteins MLH1 and PMS2 is a major component of the MMR complex, yet mutations in the PMS2 gene are rare in the etiology of hereditary nonpolyposis colorectal cancer. Evidence from five published cases suggested that contrary to the Knudson principle, PMS2 mutations cause hereditary nonpolyposis colorectal cancer or Turcot syndrome only when they are biallelic in the germline or abnormally expressed. As candidates for PMS2 mutations, we selected seven patients whose colon tumors stained negative for PMS2 and positive for MLH1 by immunohistochemistry. After conversion to haploidy, truncating germline mutations of PMS2 were found in two patients (2192delTAACT and deletion of exon 8). These mutations abrogated PMS2 protein in germline cells by Western analysis. In two additional patients, PMS2 protein from one allele also was abrogated. Novel or previously described missense variants of PMS2 were detected, but their pathogenicity is undetermined. We detected and characterized a new transcript, PMS2CL, showing 98% sequence identity with exons 9 and 11-15 of PMS2 and emanating from a locus close to PMS2 in chromosome 7p. Its predicted protein product was not detected. Thus, in addition to several previously described PMS2-related genes resembling the 5' end of PMS2, at least one related gene resembles the 3' end of PMS2. In conclusion, both detectable and presently undefined germline mutations are deleterious and produce susceptibility to cancer by the two-hit mechanism. Paralogous genes interfere with mutation detection, resulting in underdiagnosis of PMS2 mutations. Mutation detection in PMS2 requires haploid DNA.