DNA Polymerase theta (Polθ, gene name POLQ) is the central enzyme of theta-mediated end-joining (TMEJ), an intrinsically mutagenic DNA double-strand break (DSB) repair pathway. Polθ is broadly conserved across most metazoan and plant species, suggesting an essential yet incompletely understood role in genome maintenance. POLQ-deficient organisms are viable but often accumulate genomic aberrations, such as micronuclei and fragile site expression. In cancer, however, Polθ activity is often dysregulated, driving chromosomal rearrangements characteristic of TMEJ hyperactivity. The finding that some cancers are dependent on hyperactive TMEJ has positioned Polθ as a therapeutic target, particularly in tumors with homologous recombination deficiency. The dual nature of Polθ—as both a genome-preserving and genome-destabilizing factor—reflects the importance of damage context and multi-layered regulatory mechanisms that ensure its precise deployment in normal cells, while the loss of these regulatory controls may be prevalent in cancer. This review synthesizes current knowledge on the DNA damage contexts that require Polθ for repair and how Polθ activity is restricted to these contexts to prevent catastrophic genome rearrangements while also not interfering with error-free DNA repair.