Cancer-causing mutations often arise from gross chromosomal rearrangements (GCRs) such as translocations, which involve genetic exchange between nonhomologous chromosomes. Here we show that murine Brca2 has an essential function in suppressing GCR formation after chromosome breakage. Cells that harbor truncated Brca2 spontaneously incur GCRs and genomic DNA breaks during division. They exhibit hypersensitivity to DNA damage by interstrand cross-linkers, which even at low doses trigger aberrant genetic exchange between nonhomologous chromosomes. Therefore, genetic instability in Brca2-deficient cells results from the mutagenic processing of spontaneous or induced DNA damage into gross chromosomal rearrangements, providing a mechanistic basis for cancer predisposition.