The DNA damage checkpoint protein kinase mutated in ataxia telangiectasia (ATM) is involved in sensing and transducing DNA damage signals by phosphorylating and activating downstream target proteins that are implicated in the regulation of cell cycle progression and DNA repair. Atm-/- cells are defective in cellular proliferation mediated by the Arf/p53/p21 pathway. In this report, we show that increased expression of p21 (also known as Waf1 or CDKN1a) in Atm-/- cells serves as a cellular defense mechanism to suppress further chromosomal instability (CIN) and tumor development because Atm-/- p21-/- mice are predisposed to carcinomas and sarcomas with intratumoral heterogeneity. It was found that Atm-deficient cells are defective in metaphase-anaphase transition leading to abnormal karyokinesis. Moreover, Atm-/- p21-/- primary embryonic fibroblasts exhibit increased CIN compared with either Atm-/- or p21-/- cells. The increased CIN is manifested at the cellular level by increased chromatid breaks and elevated aneuploid genome in Atm-/- p21-/- cells. Finally, we showed that the role of p21 in a CIN background induced by loss of Atm is to suppress numerical CIN but not structural CIN. Our data suggest that the development of aneuploidy precedes tumor formation and implicates p21 as a major tumor suppressor in a genome instability background.