Non-homologous end joining (NHEJ) is one of two pathways responsible for the repair of double-strand breaks in eukaryotic cells. The mechanism involves the alignment of broken DNA ends with minimal homology, fill in of short gaps by DNA polymerase(s), and ligation by XRCC4-DNA ligase IV complex. The gap-filling polymerase has not yet been positively identified, but recent biochemical studies have implicated DNA polymerase lambda (pol lambda), a novel DNA polymerase that has been assigned to the pol X family, in this process. Here we demonstrate that purified pol lambda can efficiently catalyze gap-filling synthesis on DNA substrates mimicking NHEJ. By designing two truncated forms of pol lambda, we also show that the unique proline-rich region in pol lambda plays a role in limiting strand displacement synthesis, a feature that may help its participation in in vivo NHEJ. Moreover, pol lambda interacts with XRCC4-DNA ligase IV via its N-terminal BRCT domain and the interaction stimulates the DNA synthesis activity of pol lambda. Taken together, these data strongly support that pol lambda functions in DNA polymerization events during NHEJ.