A variety of viruses establish latency by integrating their genome into the host genome. The integration event generally occurs in a nonspecific manner, precluding the prediction of functional consequences from resulting disruptions of affected host genes. The nonpathogenic adeno-associated virus (AAV) is unique in its ability to stably integrate in a site-specific manner into the human MBS85 gene. To gain a better understanding of the integration mechanism and the consequences of MBS85 disruption, we analyzed the molecular structure of AAV integrants in various latently infected human cell lines. Our study led to the observation that AAV integration causes an extensive but partial duplication of the target gene. Intriguingly, the molecular organization of the integrant leaves the possibility that a functional copy of the disrupted target gene could potentially be preserved despite the resulting rearrangements. A latently infected, Mbs85-targeted mouse ES cell line was generated to study the functional consequences of the observed duplication-based integration mechanism. AAV-modified ES cell lines continued to self-renew, maintained their multilineage differentiation potential and contributed successfully to mouse development when injected into blastocysts. Thus, our study reveals a viral strategy for targeted genome addition with the apparent absence of functional consequences.