Mitochondrial DNA (mtDNA) replication is essential for mitochondrial function. This is carried out by a dedicated DNA polymerase gamma, with 5’–3’ polymerase and 3’–5’ proofreading/ exonuclease activity. Perturbations to either property can have pathological consequences. Predominant sources for replication stress are DNA lesions, such as those induced by oxidative damage. How mtDNA lesions affect the polymerase activity and mtDNA stability in vivo is not fully understood. To address this, we induce mtDNA-specific damage in S. cerevisiae. We observe that mtDNA damage results in significant mtDNA loss. This loss occurs independent of cell cycle progression or cell division, suggesting an active mechanism for damaged mtDNA clearance. We implicate the 3’–5’ exonuclease activity of the mtDNA polymerase in this clearance, with rates of loss being affected by cellular dNTP levels. Overall, our findings reveal context-dependent, selective regulation of two critical but opposing functions of polymerase gamma to ensure mitochondrial genome integrity.