Maintenance of genome integrity requires tight control of DNA damage signalling and repair activities at DNA lesions, as well as their restriction at telomeres. Key components of the mechanisms underlying appropriate responses to DNA damage include phosphorylation events by DNA damage response (DDR) kinases, as well as regulatory and proteolytic ubiquitination events by the ubiquitin machinery. How these events are coordinated and controlled in a concerted manner to achieve productive DNA repair is not well understood. Here we identify the ubiquitin-conjugating enzyme UBE2D3 (or UBCH5C) as a critical multi-level regulator of ATM kinase-induced DDR signalling that controls the activity of the ubiquitin-ligase RNF168 to promote non-homologous end-joining (NHEJ) mediated DNA repair at telomeres. We find that UBE2D3 contributes to DDR-induced chromatin ubiquitination and recruitment of the NHEJ-promoting factor 53BP1, both of which are mediated by RNF168 upon DNA damage-induced ATM activation. In addition, we find that UBE2D3 promotes NHEJ by limiting RNF168 accumulation and facilitating ATM-mediated KAP1-S824 phosphorylation, important for heterochromatic DNA repair. Mechanistically, we show that defective KAP1-S824 phosphorylation upon UBE2D3-deficiency is linked to RNF168 hyperaccumulation and caused by aberrant PP2A phosphatase activity, the counteraction of which restores both KAP1-S824 phosphorylation and telomeric NHEJ in UBE2D3-deficient cells. Our results identify UBE2D3 as a novel multi-level regulator of NHEJ that orchestrates the activities of RNF168 in DNA repair. Moreover, we reveal the existence of a negative regulatory circuit in the DDR that is constrained by UBE2D3 and consists of RNF168- and PP2A-mediated restriction of ATM-dependent KAP1 phosphorylation.