The eukaryotic leading strand DNA polymerase epsilon is a dual function enzyme with a proofreading exonuclease site located 40 angstroms from the DNA synthesizing polymerase site. Errors in Pol epsilon proofreading can cause various mutations, including C to G transversions, the most prevalent mutation in cancers and genetic diseases. Pol epsilon interacts with all three subunits of the PCNA ring to assemble a functional holoenzyme. Despite previous studies on proofreading of several polymerases, how Pol epsilon, or any Pol complexed with its sliding clamp proofreads a mismatch generated in situ has been unknown. We show here by cryo-EM that a template/primer DNA substrate with a pre-existing mismatch cannot enter the exo site of Pol epsilon/PCNA holoenzyme, but a mismatch generated in the Pol site yields three proofreading intermediates of Pol epsilon/PCNA holoenzyme. These intermediates reveal how the mismatch is dislodged from the Pol site, how the DNA unwinds 6 base pairs and how the unpaired primer 3\'-end is inserted into the exo site for cleavage. These results unexpectedly demonstrate that PCNA imposes strong steric constraints that extend unwinding and direct the trajectory of mismatched DNA, and that this trajectory is dramatically different than for Pol epsilon in the absence of PCNA. These findings suggest a physiologically relevant proofreading mechanism for the human Pol epsilon/PCNA holoenzyme.