The introduction of subtle mutations to predetermined locations in the mouse genome has aided in the assessment of gene function and the precise modeling of inherited disorders. Subtle mutations can be engineered into the mouse genome by the tag and exchange gene targeting strategy (Askew et al., 1993; Stacey et al., 1994; Wu et al., 1994). This two-step method involves both a positive and a negative selection. The negative selection step typically generates a large amount of undesired background that may prevent the practical recovery of gene targeted clones (Vazquez et al., 1998). In this work we describe a strategy to effectively manage this background by calculation of a tolerable level of background for a specific targeting event, pre-screening for clones with low background, subcloning and growth of cell lines under selection. This strategy was used to repeatedly and efficiently alter the mouse Huntington's disease homologue (Hdh) resulting in an average of 15 percent of the clones having the desired modification. Analysis of the remaining background clones showed they arose de novo by a mechanism that involved physical loss of the marker rather than mutation or inactivation. We calculated the rate of loss of this marker as 8.3×10^–6 events/cell/generation. We further show that the exchanged clones retained the capacity to contribute to the mouse germline demonstrating the utility of this strategy in the production of mouse lines with Hdh variants.