The decompaction and re-establishment of chromatin organization immediately after mitosis is essential for genome regulation. Mechanisms underlying chromatin structure control in daughter cells are not fully understood. Here we show that a chromatin compaction threshold in cells exiting mitosis ensures genome integrity by limiting replication licensing in G1 phase. Upon mitotic exit, chromatin relaxation is controlled by SET8-dependent methylation of histone H4 on lysine 20. In the absence of either SET8 or H4K20 residue, substantial genome-wide chromatin decompaction occurs allowing excessive loading of the origin recognition complex (ORC) in the daughter cells. ORC overloading stimulates aberrant recruitment of the MCM2-7 complex that promotes single-stranded DNA formation and DNA damage. Restoring chromatin compaction restrains excess replication licensing and loss of genome integrity. Our findings identify a cell cycle-specific mechanism whereby fine-tuned chromatin relaxation suppresses excessive detrimental replication licensing and maintains genome integrity at the cellular transition from mitosis to G1 phase.