The human disorder ataxia telangiectasia (AT), which is characterized by genetic instability and neurodegeneration, results from mutation of the ataxia telangiectasia mutated (ATM) kinase. The loss of ATM leads to cell cycle checkpoint deficiencies and other DNA damage signaling defects that do not fully explain all pathologies associated with A-T including neuronal loss. In addressing this enigma, we find here that ATM suppresses DNA double-strand break (DSB) repair by microhomology-mediated end joining (MMEJ). We show that ATM repression of DNA end-degradation is dependent on its kinase activities and that Mre11 is the major nuclease behind increased DNA end-degradation and MMEJ repair in A-T. Assessment of MMEJ by an in vivo reporter assay system reveals decreased levels of MMEJ repair in Mre11-knockdown cells and in cells treated with Mre11-nuclease inhibitor mirin. Structure-based modeling of Mre11 dimer engaging DNA ends suggests the 5' ends of a bridged DSB are juxtaposed such that DNA unwinding and 3'-5' exonuclease activities may collaborate to facilitate simultaneous pairing of extended 5' termini and exonucleolytic degradation of the 3' ends in MMEJ. Together our results provide an integrated understanding of ATM and Mre11 in MMEJ: ATM has a critical regulatory function in controlling DNA end-stability and error-prone DSB repair and Mre11 nuclease plays a major role in initiating MMEJ in mammalian cells. These functions of ATM and Mre11 could be particularly important in neuronal cells, which are post-mitotic and therefore depend on mechanisms other than homologous recombination between sister chromatids to repair DSBs.