We have compared commonly used sequence comparison algorithms, scoring matrices, and gap penalties using a method that identifies statistically significant differences in performance. Search sensitivity with either the Smith-Waterman algorithm or FASTA is significantly improved by using modern scoring matrices, such as BLOSUM45-55, and optimized gap penalties instead of the conventional PAM250 matrix. More dramatic improvement can be obtained by scaling similarity scores by the logarithm of the length of the library sequence (In()-scaling). With the best modern scoring matrix (BLOSUM55 or 5093) and optimal gap penalties (-12 for the first residue in the gap and -2 for additional residues), Smith-Waterman and FASTA performed significantly better than BLASTP. With In()-scaling and optimal scoring matrices (BLOSUM45 or Gonnet92) and gap penalties (-12, -l), the rigorous Smith-Waterman algorithm performs better than either BLASTP and FASTA, although with the Gonnet92 matrix the difference with FASTA was not significant. Ln()-scaling performed better than normalization based on other simple functions of library sequence length. Ln()-scaling also performed better than scores based on normalized variance, but the differences were not statistically significant for the BLOSUMSO and Gonnet92 matrices. Optimal scoring matrices and gap penalties are reported for Smith-Waterman and FASTA, using conventional or In()-scaled similarity scores. Searches with no penalty for gap extension, or no penalty for gap opening, or an infinite penalty for gaps performed significantly worse than the best methods. Differences in performance between FASTA and Smith-Waterman were not significant when partial query sequences were used. However, the best performance with complete query sequences was obtained with the Smith-Waterman algorithm and In()-scaling.Keywords: BLAST; FASTA; PAM250; sequence similarity; Smith-Waterman The concurrent development of rapid methods for molecular cloning, DNA sequencing, high-performance computer workstations, and rapid protein and DNA sequence comparison algorithms has revolutionized the practice of molecular biology. Newly determined sequences are routinely compared against large sequence databases, and inferences about structure and function are frequently based on sequence similarity. Predicted growth of sequence databases and the advent of large-scale DNA sequencing projects have prompted increased interest in better methods for comparing protein and DNA sequences. As a result, several rapid biological sequence comparison algorithms (Pearson & Lipman, 1988;Altschul et al., 1990) have become used widely, and there has been considerable discussion of the best scoring parameters for sequence comparison algorithms (Collins et al