Non-homologous end-joining (NHEJ) is the most prominent DNA double strand break (DSB) repair pathway in mammalian cells. PAXX is the newest NHEJ factor, which shares structural similarity with known NHEJ factors-XRCC4 and XLF. Here we report that PAXX is dispensable for physiological NHEJ in otherwise wild-type mice. Yet Paxx-/- mice require XLF and Xlf-/- mice require PAXX for end-ligation. As such, Xlf-/-Paxx-/- mice display severe genomic instability and neuronal apoptosis, which eventually lead to embryonic lethality. Despite their structural similarities, only Xlf-/- cells, but not Paxx-/- cells require ATM/DNA-PK kinase activity for end-ligation. Mechanistically, PAXX promotes the accumulation of KU at DSBs, while XLF enhances LIG4 recruitment without affecting KU dynamics at DNA breaks in vivo. Together these findings identify the molecular functions of PAXX in KU accumulation at DNA ends and reveal distinct, yet critically complementary functions of PAXX and XLF during NHEJ.