Homogeneous gene 5 protein of bacteriophage T7, a subunit of T7 DNA polymerase, catalyzes the stepwise hydrolysis of single-stranded DNA in a 3' leads to 5' direction to yield nucleoside 5'-monophosphates. The gene 5 protein itself does not hydrolyze duplex DNA. However, in the presence of Escherichia coli thioredoxin, the host-specified subunit of T7 DNA polymerase, duplex DNA is hydrolyzed in a 3' leads to 5' direction to yield nucleoside 5'-monophosphates. The apparent Km for thioredoxin in the reaction is 4.8 x 10(-8) M, a value similar to that for the apparent Km of thioredoxin in the complementation assay with gene 5 protein to restore T7 DNA polymerase activity. Both exonuclease activities require Mg2+ and a sulfhydryl reagent for optimal activity, and both activities are sensitive to salt concentration. Deoxyribonucleoside 5'-triphosphates inhibit hydrolysis by both exonuclease activities; hydrolysis of single-stranded DNA by the gene 5 protein is inhibited even in the absence of thioredoxin where there is less than 2% active T7 DNA polymerase. E. coli DNA binding protein (helix destabilizing protein) stimulates the hydrolysis of duplex DNA up to 9-fold under conditions where the hydrolysis of the single-stranded DNA is inhibited 4-fold.