DNA synthesis, carried out by DNA polymerases, requires balancing speed and accuracy for faithful replication of the genome. High fidelity DNA polymerases contain a 3′–5′ exonuclease domain that can remove misincorporated nucleotides on the 3′ end of the primer strand, a process called proofreading. The E. coli replicative polymerase, DNA polymerase III, has spatially separated (∼55 Å apart) polymerase and exonuclease subunits. Here, we report on the dynamics of E. coli DNA polymerase III proofreading in the presence of its processivity factor, the β2-sliding clamp, at varying base pair termini using single-molecule FRET. We find that the binding kinetics do not depend on the base identity at the termini, indicating a tolerance for DNA mismatches. Further, our single-molecule data and MD simulations show two previously unobserved features: (1) DNA Polymerase III is a highly dynamic protein that adopts multiple conformational states while bound to DNA with matched or mismatched ends, and (2) an exonuclease-deficient DNA polymerase III has reduced conformational flexibility. Overall, our single-molecule experiments provide high time-resolution insight into a mechanism that ensures high fidelity DNA replication to maintain genome integrity.