Many types of DNA structures are generated in response to DNA damage, repair and recombination that require processing via specialized nucleases. DNA hairpins represent one such class of structures formed during V(D)J recombination, palindrome extrusion, DNA transposition and some types of double-strand breaks. Here we present biochemical and genetic evidence to suggest that Pso2 is a robust DNA hairpin opening nuclease in budding yeast. Pso2 (SNM1A in mammals) belongs to a small group of proteins thought to function predominantly during interstrand crosslink (ICL) repair. In this study, we characterized the nuclease activity of Pso2 toward a variety of DNA substrates. Unexpectedly, Pso2 was found to be an efficient, structure-specific DNA hairpin opening endonuclease. This activity was further shown to be required in vivo for repair of chromosomal breaks harboring closed hairpin ends. These findings provide the first evidence that Pso2 may function outside ICL repair and open the possibility that Pso2 may function at least in part during ICL repair by processing DNA intermediates including DNA hairpins or hairpin-like structures.