A growing body of evidence indicates that RNA plays a critical role in orchestrating DNA double-strand break repair (DSBR). Recently, we showed that homologous nascent RNA can be used as a template for error-free repair of double-strand breaks (DSBs) in the transcribed genome and to restore the missing sequence at the break site via the transcription-coupled classical nonhomologous end-joining (TC-NHEJ) pathway. TC-NHEJ is a complex multistep process in which a reverse transcriptase (RT) is essential for synthesizing the DNA strand from template RNA. However, the identity of the RT involved in the TC-NHEJ pathway remained unknown. Here, we report that DNA polymerase eta (Pol η), known to possess RT activity, plays a critical role in TC-NHEJ. We found that Pol η forms a multiprotein complex with RNAP II and other TC-NHEJ factors, while also associating with nascent RNA. Moreover, purified Pol η, along with DSBR proteins PNKP, XRCC4, and Ligase IV can fully repair RNA templated 3'-phosphate-containing gapped DNA substrate. In addition, we demonstrate here that Pol η deficiency leads to accumulation of R-loops and persistent strand breaks in the transcribed genes. Finally, we determined that, in Pol η depleted but not in control cells, TC-NHEJ-mediated repair was severely abrogated when a reporter plasmid containing a DSB with several nucleotide deletion within the E. coli lacZ gene was introduced for repair in lacZ-expressing mammalian cells. Thus, our data strongly suggest that RT activity of Pol η is required in error-free DSBR.