Mammalian phosphoglycolate phosphatase (PGP) is thought to target phosphoglycolate, a 2-deoxyribose fragment derived from the repair of oxidative DNA lesions. However, the physiological role of this activity and the biological function of the DNA damage product phosphoglycolate is unknown. We now show that knockin replacement of murine Pgp with its phosphatase-inactive Pgp(D34N) mutant is embryonically lethal due to intrauterine growth arrest and developmental delay in midgestation. PGP inactivation attenuated triosephosphate isomerase activity, increased triglyceride levels at the expense of the cellular phosphatidylcholine content, and inhibited cell proliferation. These effects were prevented under hypoxic conditions or by blocking phosphoglycolate release from damaged DNA. Thus, PGP is essential to sustain cell proliferation in the presence of oxygen. Collectively, our findings reveal a previously unknown mechanism coupling a DNA damage repair product to the control of intermediary metabolism and cell proliferation.