The xeroderma pigmentosum complementation group E (XP-E) gene product damaged-DNA binding protein 2 (DDB2) plays important roles in nucleotide excision repair (NER). Previously, we showed that DDB2 participates in NER by regulating the level of p21(Waf1/Cip1). Here we show that the p21(Waf1/Cip1) -regulatory function of DDB2 plays a central role in defining the response (apoptosis or arrest) to DNA damage. The DDB2-deficient cells are resistant to apoptosis in response to a variety of DNA-damaging agents, despite activation of p53 and the pro-apoptotic genes. Instead, these cells undergo cell cycle arrest. Also, the DDB2-deficient cells are resistant to E2F1-induced apoptosis. The resistance to apoptosis of the DDB2-deficient cells is caused by an increased accumulation of p21(Waf1/Cip1) after DNA damage. We provide evidence that DDB2 targets p21(Waf1/Cip1) for proteolysis. The resistance to apoptosis in DDB2-deficient cells also involves Mdm2 in a manner that is distinct from the p53-regulatory activity of Mdm2. Our results provide evidence for a new regulatory loop involving the NER protein DDB2, Mdm2, and p21(Waf1/Cip1) that is critical in deciding cell fate (apoptosis or arrest) upon DNA damage.