XPB helicase is an integral part of transcription factor TFIIH, required for both transcription initiation and nucleotide excision repair (NER). Along with the XPD helicase, XPB plays a crucial but only partly understood role in defining and extending the DNA repair bubble around lesions in NER. Archaea encode clear homologues of XPB and XPD, and structural studies of these proteins have yielded key insights relevant to the eukaryal system. Here we show that archaeal XPB functions with a structure-specific nuclease, Bax1, as a helicase-nuclease machine that unwinds and cleaves model NER substrates. DNA bubbles are extended by XPB and cleaved by Bax1 at a position equivalent to that cut by the XPG nuclease in eukaryal NER. The helicase activity of archaeal XPB is dependent on the conserved Thumb domain, which may act as the helix breaker. The N-terminal damage recognition domain of XPB is shown to be crucial for XPB-Bax1 activity and may be unique to the archaea. These findings have implications for the role of XPB in both archaeal and eukaryal NER and for the evolution of the NER pathway. XPB is shown to be a very limited helicase that can act on small DNA bubbles and open a defined region of the DNA duplex. The specialized functions of the accessory domains of XPB are now more clearly delineated. This is also the first direct demonstration of a repair function for archaeal XPB and suggests strongly that the role of XPB in transcription occurred later in evolution than that in repair.