Mutations in the mismatch repair gene MSH2 underlie hereditary nonpolyposis colorectal cancer (Lynch syndrome). Whereas disruptive mutations are overtly pathogenic, the implications of missense mutations found in sporadic colorectal cancer patients or in suspected Lynch syndrome families are often unknown. Adequate genetic counseling of mutation carriers requires phenotypic characterization of the variant allele. We present a novel approach to functionally characterize MSH2 missense mutations. Our approach involves introduction of the mutation into the endogenous gene of murine embryonic stem cells (ESC) by oligonucleotide-directed gene modification, a technique we recently developed in our lab. Subsequently, the mismatch repair capacity of mutant ESC is determined using a set of validated functional assays. We have evaluated four clinically relevant MSH2 variants and found one to completely lack mismatch repair capacity while three behaved as wild-type MSH2 and can therefore be considered as polymorphisms. Our approach contributes to an adequate risk assessment of mismatch repair missense mutations. We have also shown that oligonucleotide-directed gene modification provides a straightforward approach to recreate allelic variants in the endogenous gene in murine ESC. This approach can be extended to other hereditary conditions.