To repair double-strand DNA breaks by homologous recombination, the 5'-terminated DNA strand must first be resected, which generates 3' single-stranded DNA overhangs. Genetic evidence suggests that this process is initiated by the Mre11-Rad50-Xrs2 (MRX) complex. However, its involvement was puzzling, as the complex possesses exonuclease activity with the opposite (3' to 5') polarity from that required for homologous recombination. Consequently, a bidirectional model has been proposed whereby dsDNA is first incised endonucleolytically and MRX then proceeds back to the dsDNA end using its 3' to 5' exonuclease. The endonuclease creates entry sites for Sgs1-Dna2 and/or Exo1, which then carry out long-range resection in the 5' to 3' direction. However, the identity of the endonuclease remained unclear. Using purified Saccharomyces cerevisiae proteins, we show that Sae2 promotes dsDNA-specific endonuclease activity by the Mre11 subunit within the MRX complex. The endonuclease preferentially cleaves the 5'-terminated dsDNA strand, which explains the polarity paradox. The dsDNA end clipping is strongly stimulated by protein blocks at the DNA end, and requires the ATPase activity of Rad50 and physical interactions between MRX and Sae2. Our results suggest that MRX initiates dsDNA break processing by dsDNA endonuclease rather than exonuclease activity, and that Sae2 is the key regulator of this process. These findings demonstrate a probable mechanism for the initiation of dsDNA break processing in both vegetative and meiotic cells.