Phage Mu transposition is initiated by the Mu DNA strand-transfer reaction, which generates a branched DNA structure that acts as a transposition intermediate. A critical step in this reaction is formation of a special synaptic DNA-protein complex called a plectosome. We find that formation of this complex involves, in addition to a pair of Mu end sequences, a third cis-acting sequence element, the internal activation sequence (IAS). The IAS is specifically recognized by the N-terminal domain of Mu transposase (MuA protein). Neither the N-terminal domain of MuA protein nor the IAS is required for later reaction steps. The IAS overlaps with the sequences to which Mu repressor protein binds in the Mu operator region; the Mu repressor directly inhibits the Mu DNA strand-transfer reaction by interfering with the interaction between MuA protein and the IAS, providing an additional mode of regulation by the repressor.