The IS26 transposase, Tnp26, catalyzes IS26 movement to a new site and deletion or inversion of adjacent DNA via a replicative route. The intramolecular deletion reaction produces a circular molecule consisting of a DNA segment and a single IS26, which we call a translocatable unit or TU. Recently, Tnp26 was shown to catalyze an additional intermolecular, conservative reaction between two preexisting copies of IS26 in different plasmids. Here, we have investigated the relative contributions of homologous recombination and Tnp26-catalyzed reactions to the generation of a transposon from a TU. Circular TUs containing the aphA1a kanamycin and neomycin resistance gene or the tet(D) tetracycline resistance determinant were generated in vitro and transformed into Escherichia coli recA cells carrying R388::IS26. The TU incorporated next to the IS26 in R388::IS26 forms a transposon with the insertion sequence (IS) in direct orientation. Introduction of a second TU produced regions containing both the aphA1a gene and the tet(D) determinant in either order but with only three copies of IS26. The integration reaction, which required a preexisting IS26, was precise and conservative and was 50-fold more efficient when both IS26 copies could produce an active Tnp26. When both ISs were inactivated by a frameshift in tnp26, TU incorporation was not detected in E. coli recA cells, but it did occur in E. coli recA (+) cells. However, the Tnp-catalyzed reaction was 100-fold more efficient than RecA-dependent homologous recombination. The ability of Tnp26 to function in either a replicative or conservative mode is likely to explain the prominence of IS26-bounded transposons in the resistance regions found in Gram-negative bacteria. IMPORTANCE In Gram-negative bacteria, IS26 recruits antibiotic resistance genes into the mobile gene pool by forming transposons carrying many different resistance genes. In addition to replicative transposition, IS26 was recently shown to use a novel conservative movement mechanism in which an incoming IS26 targets a preexisting one. Here, we have demonstrated how IS26-bounded class I transposons can be produced from translocatable units (TUs) containing only an IS26 and a resistance gene via the conservative reaction. TUs were incorporated next to an existing IS26, creating a class I transposon, and if the targeted IS26 is in a transposon, the product resembles two transposons sharing a central IS26, a configuration observed in some resistance regions and when a transposon is tandemly duplicated. Though homologous recombination could also incorporate a TU, Tnp26 is far more efficient. This provides insight into how IS26 builds transposons and brings additional transposons into resistance regions.