In the first step of IS2 transposition, the formation of an IS2 minicircle, the roles of the two IS ends differ. Terminal cleavage initiates exclusively at the right inverted repeat (IRR) – the donor end – whereas IRL is always the target. At the resulting minicircle junction, the two abutted ends are separated by a spacer of 1 or 2 basepairs. In this study, we have identified the determinants of donor and target function. The inability of IRL to act as a donor results largely from two sequence differences between IRL and IRR – an extra basepair between the conserved transposase binding sequences and the end of the element, and a change of the terminal dinucleotide from CA-3′ to TA-3′. These two changes also impose a characteristic size on the minicircle junction spacer. The only sequences required for the efficient target function of IRL appear to be contained within the segment from position 11–42. Although IRR can function as a target, its shorter length and additional contacts with transposase (positions 1–7) result in minicircles with longer, and inappropriate, spacers. We propose a model for the synaptic complex in which the terminus of IRL makes different contacts with the transposase for the initial and final strand transfer steps. The sequence differences between IRR and IRL, and the behavioural characteristics of IRL that result from them, have probably been selected because they optimize expression of transposase from the minicircle junction promoter, Pjunc.