We previously isolated the RNC1/TRM2 gene and provided evidence that it encodes a protein with a possible role in DNA double strand break repair. RNC1 was independently re-isolated as the TRM2 gene encoding a methyl transferase involved in tRNA maturation. Here we show that Trm2p purified as a fusion protein displayed 5' --> 3' exonuclease activity on double-strand (ds) DNA, and endonuclease activity on single-strand (ss) DNA, properties characteristic of previously isolated endo-exonucleases. A variant of Trm2p, Trm2p(ctDelta76aa) lacking 76 amino acids at the C-terminus retained nuclease activities but not the methyl transferase activity. Both the native and the variant exhibited sensitivity to the endo-exonuclease inhibitor pentamidine. The Saccharomyces cerevisiae trm2(Delta232-1920nt) mutant (containing only the first 231 nucleotides of the TRM2 gene) displayed low sensitivity to methyl methane sulfonate (MMS) and suppressed the MMS sensitivity of rad52 mutants in trm2(Delta232-1920nt)rad52 double mutants. The deletion of KU80, in trm2(Delta232-1920nt) mutant background displayed higher MMS sensitivity supporting the view of the possible role of Trm2p in a competing repair pathway separate from NHEJ. In addition, trm2 exo1 double mutants were synergistically more sensitive to MMS and ionizing radiation than either of the single mutant suggesting that TRM2 and EXO1 can functionally complement each other. However, the C-terminal portion, required for its methyl transferase activity was found not important for DNA repair. These results propose an important role for TRM2 in DNA repair with a potential involvement of its nuclease function in homologous recombination based repair of DNA DSBs.