Spinocerebellar ataxia type 3 (SCA3) is a dominantly inherited neurodegenerative disease caused by CAG (encoding glutamine) repeat expansion in the Ataxin-3 (ATXN3) gene. We have shown previously that ATXN3-depleted or pathogenic ATXN3-expressing cells abrogate polynucleotide kinase 3'-phosphatase (PNKP) activity. Here, we report that ATXN3 associates with RNA polymerase II (RNAP II) and the classical nonhomologous end-joining (C-NHEJ) proteins, including PNKP, along with nascent RNAs under physiological conditions. Notably, ATXN3 depletion significantly decreased global transcription, repair of transcribed genes, and error-free double-strand break repair of a 3'-phosphate-containing terminally gapped, linearized reporter plasmid. The missing sequence at the terminal break site was restored in the recircularized plasmid in control cells by using the endogenous homologous transcript as a template, indicating ATXN3's role in PNKP-mediated error-free C-NHEJ. Furthermore, brain extracts from SCA3 patients and mice show significantly lower PNKP activity, elevated p53BP1 level, more abundant strand-breaks in the transcribed genes, and degradation of RNAP II relative to controls. A similar RNAP II degradation is also evident in mutant ATXN3-expressing Drosophila larval brains and eyes. Importantly, SCA3 phenotype in Drosophila was completely amenable to PNKP complementation. Hence, salvaging PNKP's activity can be a promising therapeutic strategy for SCA3.