BRCA1/2 mutations account for only a small fraction of homologous recombination (HR) deficiency (HRD) cases. Recently developed genomic HRD (gHRD) tests suffer confounding factors that cause low precision in predicting samples that will respond to PARP inhibitors and DNA damaging agents. Here we present molecular and clinical evidence of transcriptional HRD (tHRD) that is based on aberrant transcript usage (aTU) of minor isoforms. Specifically, increased TU of nonfunctional isoforms of DNA repair genes was prevalent in breast and ovarian cancer with gHRD. Functional assays validated the association of aTU with impaired HR activity. Machine learning-based tHRD detection by the transcript usage (TU) pattern of key genes was superior to directly screening for gHRD or BRCA1/2 mutations in accurately predicting responses of cell lines and patients with cancer to PARP inhibitors and genotoxic drugs. This approach demonstrated the capability of tHRD status to reflect functional HR status, including in a cohort of olaparib-treated ovarian cancer with acquired platinum resistance. Diagnostic tests based on tHRD are expected to broaden the clinical utility of PARP inhibitors. Significance: A novel but widespread transcriptional mechanism by which homologous recombination deficiency arises independently of BRCA1/2 mutations can be utilized as a companion diagnostic for PARP inhibitors.