The strand displacement activity of DNA polymerase is strongly stimulated by its interaction with proliferating cell nuclear antigen (PCNA). However, inactivation of the 3'–5' exonuclease activity is sufficient to allow the polymerase to carry out strand displacement even in the absence of PCNA. We have examined in vitro the basic biochemical properties that allow Pol -exo^– to carry out strand displacement synthesis and discovered that it is regulated by the 5'-flaps in the DNA strand to be displaced. Under conditions where Pol carries out strand displacement synthesis, the presence of long 5'-flaps or addition in trans of ssDNA suppress this activity. This suggests the presence of a secondary DNA binding site on the enzyme that is responsible for modulation of strand displacement activity. The inhibitory effect of a long 5'-flap can be suppressed by its interaction with single-stranded DNA binding proteins. However, this relief of flap-inhibition does not simply originate from binding of Replication Protein A to the flap and sequestering it. Interaction of Pol with PCNA eliminates flap-mediated inhibition of strand displacement synthesis by masking the secondary DNA site on the polymerase. These data suggest that in addition to enhancing the processivity of the polymerase PCNA is an allosteric modulator of other Pol activities.