Poly(ADP-ribose) polymerase (PARP) inhibitors are strikingly toxic to cells with defects in homologous recombination (HR). The mechanistic basis for these findings is incompletely understood. Here, we show that PARP inhibitor treatment induces phosphorylation of DNA-dependent protein kinase substrates and stimulates error-prone nonhomologous end joining (NHEJ) selectively in HR-deficient cells. Notably, inhibiting DNA-dependent protein kinase activity reverses the genomic instability previously reported in these cells after PARP inhibition. Moreover, disabling NHEJ by using genetic or pharmacologic approaches rescues the lethality of PARP inhibition or down-regulation in cell lines lacking BRCA2, BRCA1, or ATM. Collectively, our results not only implicate PARP1 catalytic activity in the regulation of NHEJ in HR-deficient cells, but also indicate that deregulated NHEJ plays a major role in generating the genomic instability and cytotoxicity in HR-deficient cells treated with PARP inhibitors.