Accumulation of single stranded DNA (ssDNA) gaps in the nascent strand during DNA replication has been associated with cytotoxicity and hypersensitivity to genotoxic stress, particularly upon inactivation of the BRCA tumor suppressor pathway. However, how ssDNA gaps contribute to genotoxicity is not well understood. Here, we describe a multi-step nucleolytic processing of replication stress-induced ssDNA gaps which converts them into cytotoxic double stranded DNA breaks (DSBs). We show that ssDNA gaps are extended bidirectionally by MRE11 in the 3’−5’ direction and by EXO1 in the 5’−3’ direction, in a process which is suppressed by the BRCA pathway. Subsequently, the parental strand at the ssDNA gap is cleaved by the MRE11 endonuclease generating a double strand break. We also show that exposure to bisphenol A (BPA) and diethylhexyl phthalate (DEHP), which are widespread environmental contaminants due to their use in plastics manufacturing, causes nascent strand ssDNA gaps during replication. These gaps are processed through the same mechanism described above to generate DSBs. Our work sheds light on both the relevance of ssDNA gaps as major determinants of genomic instability, as well as the mechanism through which they are processed to generate genomic instability and cytotoxicity.