Heterozygous carriers of germ-line mutations in the BRCA2/FANCD1, PALB2/FANCN and RAD51C/FANCO DNA repair genes have an increased lifetime risk of developing breast, ovarian and other cancers; bi-allelic mutations in these genes clinically manifest as Fanconi anemia (FA). Here, we demonstrate that RAD51C is part of a novel protein complex that contains PALB2 and BRCA2. Further, the PALB2 WD40 domain can directly and independently bind RAD51C and BRCA2. To understand the role of these homologous recombination (HR) proteins in DNA repair, we functionally characterize effects of missense mutants of the PALB2 WD40 domain that have been reported in breast cancer patients. In contrast to large truncations of PALB2, which display a complete loss of interaction, the L939W, T1030I and L1143P missense mutants/variants of the PALB2 WD40 domain are associated with altered patterns of direct binding to the RAD51C, RAD51 and BRCA2 HR proteins in biochemical assays. Further, the T1030I missense mutant is unstable, whereas the L939W and L1143P proteins are stable but partially disrupt the PALB2-RAD51C-BRCA2 complex in cells. Functionally, the L939W and L1143P mutants display a decreased capacity for DNA double-strand break-induced HR and an increased cellular sensitivity to ionizing radiation. As further evidence for the functional importance of the HR complex, RAD51C mutants that are associated with cancer susceptibility and FA also display decreased complex formation with PALB2. Together, our results suggest that three different cancer susceptibility and FA proteins function in a DNA repair pathway based upon the PALB2 WD40 domain binding to RAD51C and BRCA2.