DNA strand-breaks (SBs) with non-ligatable ends are generated by ionizing radiation, oxidative stress, various chemotherapeutic agents, and also as base excision repair (BER) intermediates. Several neurological diseases have already been identified as being due to a deficiency in DNA end-processing activities. Two common dirty ends, 3'-P and 5'-OH, are processed by mammalian polynucleotide kinase 3'-phosphatase (PNKP), a bifunctional enzyme with 3'-phosphatase and 5'-kinase activities. We have made the unexpected observation that PNKP stably associates with Ataxin-3 (ATXN3), a polyglutamine repeat-containing protein mutated in spinocerebellar ataxia type 3 (SCA3), also known as Machado-Joseph Disease (MJD). This disease is one of the most common dominantly inherited ataxias worldwide; the defect in SCA3 is due to CAG repeat expansion (from the normal 14-41 to 55-82 repeats) in the ATXN3 coding region. However, how the expanded form gains its toxic function is still not clearly understood. Here we report that purified wild-type (WT) ATXN3 stimulates, and by contrast the mutant form specifically inhibits, PNKP's 3' phosphatase activity in vitro. ATXN3-deficient cells also show decreased PNKP activity. Furthermore, transgenic mice conditionally expressing the pathological form of human ATXN3 also showed decreased 3'-phosphatase activity of PNKP, mostly in the deep cerebellar nuclei, one of the most affected regions in MJD patients' brain. Finally, long amplicon quantitative PCR analysis of human MJD patients' brain samples showed a significant accumulation of DNA strand breaks. Our results thus indicate that the accumulation of DNA strand breaks due to functional deficiency of PNKP is etiologically linked to the pathogenesis of SCA3/MJD.