Recent studies indicate that the DNA recognition domain of transcription activator-like (TAL) effectors can be combined with the nuclease domain of FokI restriction enzyme to produce TAL effector nucleases (TALENs) that, in pairs, bind adjacent DNA target sites and produce double-strand breaks between the target sequences, stimulating non-homologous end-joining and homologous recombination. Here, we exploit the four prevalent TAL repeats and their DNA recognition cipher to develop a ‘modular assembly’ method for rapid production of designer TALENs (dTALENs) that recognize unique DNA sequence up to 23 bases in any gene. We have used this approach to engineer 10 dTALENs to target specific loci in native yeast chromosomal genes. All dTALENs produced high rates of site-specific gene disruptions and created strains with expected mutant phenotypes. Moreover, dTALENs stimulated high rates (up to 34%) of gene replacement by homologous recombination. Finally, dTALENs caused no detectable cytotoxicity and minimal levels of undesired genetic mutations in the treated yeast strains. These studies expand the realm of verified TALEN activity from cultured human cells to an intact eukaryotic organism and suggest that low-cost, highly dependable dTALENs can assume a significant role for gene modifications of value in human and animal health, agriculture and industry.