Summary Wip1 phosphatase is emerging as an important regulator of tumorigenesis, but no unifying mechanistic network has been proposed. We found that Wip1 plays a key role in the transcriptional regulation of heterochromatin-associated DNA sequences. Wip1 was required for epigenetic remodeling of repetitive DNA elements through regulation of BRCA1 interaction with HP1, the recruitment of DNA methyltransferases, and subsequent DNA methylation. Attenuation of ATM, in turn, reversed heterochromatin methylation. This mechanism was critical for the recruitment of the AID cytidine deaminase, and Wip1 levels strongly correlated with C-to-T substitutions and a total mutation load in primary breast cancers. We propose that Wip1 plays an important role in the regulation of global heterochromatin silencing and thus is critical in maintaining genome integrity.