The formation of RNA–DNA hybrids, referred to as R-loops, can promote genome instability and cancer development. Yet the mechanisms by which R-loops compromise genome instability are poorly understood. Here, we establish roles for the evolutionarily conserved Nrl1 protein in pre-mRNA splicing regulation, R-loop suppression and in maintaining genome stability. nrl1Δ mutants exhibit endogenous DNA damage, are sensitive to exogenous DNA damage, and have defects in homologous recombination (HR) repair. Concomitantly, nrl1Δ cells display significant changes in gene expression, similar to those induced by DNA damage in wild-type cells. Further, we find that nrl1Δ cells accumulate high levels of R-loops, which co-localize with HR repair factors and require Rad51 and Rad52 for their formation. Together, our findings support a model in which R-loop accumulation and subsequent DNA damage sequesters HR factors, thereby compromising HR repair at endogenously or exogenously induced DNA damage sites, leading to genome instability.