Cells are protected from toxic DNA double-stranded breaks (DSBs) by a number of DNA repair mechanisms, including some that are intrinsically error prone, thus resulting in mutations. To what extent these mechanisms contribute to evolutionary diversification remains unknown. Here, we demonstrate that the A-family polymerase theta (POLQ) is a major driver of inheritable genomic alterations in Caenorhabditis elegans. Unlike somatic cells, which use non-homologous end joining (NHEJ) to repair DNA transposon-induced DSBs, germ cells use polymerase theta-mediated end joining, a conceptually simple repair mechanism requiring only one nucleotide as a template for repair. Also CRISPR/Cas9-induced genomic changes are exclusively generated through polymerase theta-mediated end joining, refuting a previously assumed requirement for NHEJ in their formation. Finally, through whole-genome sequencing of propagated populations, we show that only POLQ-proficient animals accumulate genomic scars that are abundantly present in genomes of wild C. elegans, pointing towards POLQ as a major driver of genome diversification.