Human DNA polymerase eta, the product of the skin cancer susceptibility gene XPV, bypasses UV photoproducts in template DNA that block synthesis by other DNA polymerases. Pol eta lacks an intrinsic proofreading exonuclease and copies DNA with low fidelity, such that pol eta errors could contribute to mutagenesis unless they are corrected. Here we provide evidence that pol eta can compete with other human polymerases during replication of duplex DNA, and in so doing it lowers replication fidelity. However, we show that pol eta has low processivity and extends mismatched primer termini less efficiently than matched termini. These properties could provide an opportunity for extrinsic exonuclease(s) to proofread pol eta-induced replication errors. When we tested this hypothesis during replication in human cell extracts, pol eta-induced replication infidelity was found to be modulated by changing the dNTP concentration and to be enhanced by adding dGMP to a replication reaction. Both effects are classical hallmarks of exonucleolytic proofreading. Thus, pol eta is ideally suited for its role in reducing UV-induced mutagenesis and skin cancer risk, in that its relaxed base selectivity may facilitate efficient bypass of UV photoproducts, while subsequent proofreading by extrinsic exonuclease(s) may reduce its mutagenic potential.