DNA polymerase theta (Polθ), also known as DNA polymerase θ, is the member of the DNA polymerase A family and plays a crucial role in the repair of DNA double-strand breaks (DSB). Polθ has 3 distinct structural domains: the N-terminal helicase-like domain with a conserved sequence, the C-terminal polymerase domain, and the central domain, which is a disordered sequence connecting these two regions. Notably, Polθ is the only known polymerase in eukaryotes that possesses helicase activity. However, it is also an error-prone polymerase. When DNA DSBs occur, a specialized network consisting of at least 4 pathways, including classical-non homologous end joining (C-NHEJ), homologous recombination (HR), single-strand annealing (SSA), and alternative-end joining (Alt-EJ), is responsible for repairing DNA damage caused by DSBs. In the absence of major DNA repair pathways like HR, cells rely on Alt-EJ pathway mediated by Polθ to repair damaged DNA and maintain genomic stability. Nevertheless, due to the low fidelity of Polθ, Alt-EJ repair often leads to errors. Depletion of Polθ has shown to increases DSB formation and compromise genomic stability. Conversely, overexpression of Polθ has been associated with increases DNA damage markers and impairs cell cycle progression. As a result, the impact of Polθ on genome stability remains controversial. Furthermore, overexpression of Polθ is frequently observed in cancer and is associated with a characteristic mutational signature and poor prognosis. Depleting Polθ in an HR-deficient background has been shown to impair cell viability, suggesting a synthetic lethal (SL) relationship between Polθ and HR factors. In recent years, targeted chemotherapy drugs that inhibit tumor growth have gained significant attention. However, off-target effects and drug resistance pose challenges for clinical application, particularly with poly-ADP-ribose polymerase inhibitor (PARPi). Blocking Polθ activity in HR-deficient tumor cells has been found to reverse PARPi resistance, making Polθ a very promising therapeutic target in cancer treatment. The availability of crystal structures for both helicase and polymerase domain has facilitated the design of potent inhibitors of Polθ. Currently, several highly specific and effective small molecule inhibitors targeting Polθ, such as Novobiocin, RP-6685, and ART558, have been reported to effectively block various cancers with HR deficiency. The initial success of these inhibitors points to new directions for treating BRCA1/2-mutated tumors. Additionally, reducing the Alt-EJ repair pathway mediated by Polθ can improve HR repair efficiency and increase the chance of exogenous gene target integration (TI), suggesting potential new applications for Polθ inhibitors. This article reviews the recent research progress on the molecular function of Polθ and its involvement in the Alt-EJ pathway modification mechanism, providing insights for a deeper understanding of this field.