BRCA1, BRCA2 and other known susceptibility genes account for less than half of the detectable hereditary predisposition to breast cancer. Other relevant genes therefore remain to be discovered. Recently a new BRCA2-binding protein, PALB2, was identified. The BRCA2-PALB2 interaction is crucial for certain key BRCA2 DNA damage response functions as well as its tumour suppression activity. Here we show, by screening for PALB2 mutations in Finland that a frameshift mutation, c.1592delT, is present at significantly elevated frequency in familial breast cancer cases compared with ancestry-matched population controls. The truncated PALB2 protein caused by this mutation retained little BRCA2-binding capacity and was deficient in homologous recombination and crosslink repair. Further screening of c.1592delT in unselected breast cancer individuals revealed a roughly fourfold enrichment of this mutation in patients compared with controls. Most of the mutation-positive unselected cases had a familial pattern of disease development. In addition, one multigenerational prostate cancer family that segregated the c.1592delT truncation allele was observed. These results indicate that PALB2 is a breast cancer susceptibility gene that, in a suitably mutant form, may also contribute to familial prostate cancer development.