Defective DNA repair by homologous recombination (HR) is thought to be a major contributor to tumorigenesis in individuals carrying Brca1 mutations. Here, we show that DNA breaks in Brca1-deficient cells are aberrantly joined into complex chromosome rearrangements by a process dependent on the nonhomologous end-joining (NHEJ) factors 53BP1 and DNA ligase 4. Loss of 53BP1 alleviates hypersensitivity of Brca1 mutant cells to PARP inhibition and restores error-free repair by HR. Mechanistically, 53BP1 deletion promotes ATM-dependent processing of broken DNA ends to produce recombinogenic single-stranded DNA competent for HR. In contrast, Lig4 deficiency does not rescue the HR defect in Brca1 mutant cells but prevents the joining of chromatid breaks into chromosome rearrangements. Our results illustrate that HR and NHEJ compete to process DNA breaks that arise during DNA replication and that shifting the balance between these pathways can be exploited to selectively protect or kill cells harboring Brca1 mutations.