MutLγ, a heterodimer of the MutL homologues Mlh1 and Mlh3, plays a critical role during meiotic homologous recombination. The meiotic function of Mlh3 is fully dependent on the integrity of a putative nuclease motif DQHA(X)2E(X)4E, inferring that the anticipated nuclease activity of Mlh1-Mlh3 is involved in the processing of joint molecules to generate crossover recombination products. Although a vast body of genetic and cell biological data regarding Mlh1-Mlh3 is available, mechanistic insights into its function have been lacking due to the unavailability of the recombinant protein complex. Here we expressed the yeast Mlh1-Mlh3 heterodimer and purified it into near homogeneity. We show that recombinant MutLγ is a nuclease that nicks double-stranded DNA. We demonstrate that MutLγ binds DNA with a high affinity, and shows a marked preference for Holliday junctions. We also expressed the human MLH1-MLH3 complex and show that preferential binding to Holliday junctions is a conserved capacity of eukaryotic MutLγ complexes. Specific DNA recognition has never been observed with any other eukaryotic MutL homologue. MutLγ thus represents a new paradigm for the function of the eukaryotic MutL protein family. We provide insights into the mode of Holliday junction recognition, and show that Mlh1-Mlh3 prefers to bind the open unstacked Holliday junction form. This further supports the model where MutLγ is part of a complex acting on joint molecules to generate crossovers in meiosis.