Double strand breaks (DSBs) and interstrand crosslinks (ICLs) are toxic DNA lesions that can be repaired through multiple pathways, some of which involve shared proteins. One of these proteins, DNA Polymerase θ (Pol θ), coordinates a mutagenic DSB repair pathway named microhomology-mediated end joining (MMEJ) and is also a critical component for bypass or repair of ICLs in several organisms. Pol θ contains both polymerase and helicase-like domains that are tethered by an unstructured central region. While the role of the polymerase domain in promoting MMEJ has been studied extensively both in vitro and in vivo, a function for the helicase-like domain, which possesses DNA-dependent ATPase activity, remains unclear. Here, we utilize genetic and biochemical analyses to examine the roles of the helicase-like and polymerase domains of Drosophila Pol θ. We demonstrate an absolute requirement for both polymerase and ATPase activities during ICL repair in vivo. However, similar to mammalian systems, polymerase activity, but not ATPase activity, is required for ionizing radiation-induced DSB repair. Using a site-specific break repair assay, we show that overall end-joining efficiency is not affected in ATPase-dead mutants, but there is a significant decrease in templated insertion events. In vitro, Pol θ can efficiently bypass a model unhooked nitrogen mustard crosslink and promote DNA synthesis following microhomology annealing, although ATPase activity is not required for these functions. Together, our data illustrate the functional importance of the helicase-like domain of Pol θ and suggest that its tethering to the polymerase domain is important for its multiple functions in DNA repair and damage tolerance.