Mitochondrial DNA (mtDNA) polymerase γ (POLγ) harbours a 3'-5' exonuclease proofreading activity. Here we demonstrate that this activity is required for the creation of ligatable ends during mtDNA replication. Exonuclease-deficient POLγ fails to pause on reaching a downstream 5'-end. Instead, the enzyme continues to polymerize into double-stranded DNA, creating an unligatable 5'-flap. Disease-associated mutations can both increase and decrease exonuclease activity and consequently impair DNA ligation. In mice, inactivation of the exonuclease activity causes an increase in mtDNA mutations and premature ageing phenotypes. These mutator mice also contain high levels of truncated, linear fragments of mtDNA. We demonstrate that the formation of these fragments is due to impaired ligation, causing nicks near the origin of heavy-strand DNA replication. In the subsequent round of replication, the nicks lead to double-strand breaks and linear fragment formation.