"Its impact on the understanding of gene function and its benefits to mankind will continue to increase over many years to come."
Gene targeting is considered by many to be a branch of research that could lead to treatments for illnesses from cancer to cystic fibrosis.
Dr Paul Sharpe, head of craniofacial development at King's College, London, said: "Gene targeting, a way of altering gene structure and hence function in animals, provides a direct way to investigate the role of particular genes."
Evans, of Cardiff University in the UK, laid the groundwork for the mice.
He discovered that days-old embryos are made up of powerful cells, later dubbed embryonic stem cells, that have the power to give rise to all the cells and tissues in an animal.
Evans and colleagues worked out how to genetically manipulate these cells and implant the embryos back into female mice, which would then gave birth to genetically altered offspring.
Capecchi, of the Howard Hughes Medical Institute and the University of Utah, and Smithies, now of the University of North Carolina, developed precise methods for changing desired genes one by one.
These discoveries led to the development of deleting individual genes to discover their function.
"If for example, you see a little finger disappear, then you know that gene is important for making little fingers," Capecchi said.
Capecchi said part of his prize money would go towards his team's research into a type of cancer called sarcoma.
"What is needed is an understanding of that cancer and each step that gives rise to that cancer. Once you identify those you can make specific drugs that will affect that type of cancer," he said.
In 2001, the trio took the Albert Lasker Award for Basic Medical Research, seen by many as the US version of the Nobel since many of its recipients have gone on to become Nobel laureates.
Scientists have now expanded the research into human embryonic stem cells, considered controversial by those who oppose the manipulation of human embryos.