Sister chromatid exchanges (SCEs) are products of joint DNA molecule resolution, and are considered to form through homologous recombination (HR). Indeed, SCE induction upon irradiation requires the canonical HR factors BRCA1, BRCA2 and RAD51. In contrast, replication-blocking agents, including PARP inhibitors, induce SCEs independently of BRCA1, BRCA2 and RAD51. PARP inhibitor-induced SCEs are enriched at difficult-to-replicate genomic regions, including common fragile sites (CFSs). PARP inhibitor-induced replication lesions are transmitted into mitosis, suggesting that SCEs can originate from mitotic processing of under-replicated DNA. Proteomics analysis reveals mitotic recruitment of DNA polymerase theta (POLQ) to synthetic DNA ends. POLQ inactivation results in reduced SCE numbers and severe chromosome fragmentation upon PARP inhibition in HR-deficient cells. Accordingly, analysis of CFSs in cancer genomes reveals frequent allelic deletions, flanked by signatures of POLQ-mediated repair. Combined, we show PARP inhibition generates under-replicated DNA, which is processed into SCEs during mitosis, independently of canonical HR factors.