Mammalian polymerase theta (Polθ) is a multifunctional enzyme that promotes error-prone DNA repair by alternative nonhomologous end joining (alt-NHEJ). Here we present structure–function analyses that reveal that, in addition to the polymerase domain, Polθ-helicase activity plays a central role during double-strand break (DSB) repair. Our results show that the helicase domain promotes chromosomal translocations by alt-NHEJ in mouse embryonic stem cells and also suppresses CRISPR–Cas9- mediated gene targeting by homologous recombination (HR). In vitro assays demonstrate that Polθ-helicase activity facilitates the removal of RPA from resected DSBs to allow their annealing and subsequent joining by alt-NHEJ. Consistent with an antagonistic role for RPA during alt-NHEJ, inhibition of RPA1 enhances end joining and suppresses recombination. Taken together, our results reveal that the balance between HR and alt-NHEJ is controlled by opposing activities of Polθ and RPA, providing further insight into the regulation of repair-pathway choice in mammalian cells.