Expanded CAG x CTG trinucleotide repeat tracts are associated with several human inherited diseases, including Huntington's disease, myotonic dystrophy, and spinocerebellar ataxias. Here we describe a new model system to investigate repeat instability in the Escherichia coli chromosome. Using this system, we reveal patterns of deletion instability consistent with secondary structure formation in vivo and address the molecular basis of orientation-dependent instability. We demonstrate that the orientation dependence of CAG x CTG trinucleotide repeat deletion is determined by the proofreading subunit of DNA polymerase III (DnaQ) in the presence of the hairpin nuclease SbcCD (Rad50/Mre11). Our results suggest that, although initiation of slippage can occur independently of CAG x CTG orientation, the folding of the intermediate affects its processing and this results in orientation dependence. We propose that proofreading is inefficient on the CTG-containing strand because of its ability to misfold and that SbcCD contributes to processing in a manner that is dependent on proofreading and repeat tract orientation. Furthermore, we demonstrate that transcription and recombination do not influence instability in this system.