DNA damage-induced mutations in actively transcribed genes in stem cells underlie genetic diseases including cancer. Here we investigated whether transcription affects DNA damage-induced gene mutations in mouse embryonic stem cells. To this aim we developed cell lines in which transcription of an Hprt minigene reporter, located at a different genomic positions, is regulated by the tTA2 Tetracycline-controlled transactivator. This allows detection of mutagenic events at both Hprt and tTA2 using a single selection. We found that UV-C and benzo[a]pyrenediolepoxide induced significantly more mutations at the Hprt minigene when the gene was transcribed. The transcription-associated increase in UV-C-induced mutagenesis appears independent of the integration site of the Hprt minigene. Molecular analysis of UV-induced Hprt mutants revealed that transcription of damaged DNA enhances the frequency of nucleotide substitutions and triggers the generation of intragenic deletions at the Hprt minigene. We speculate that these deletions are a result of error-prone DNA end-joining of double strand DNA breaks that are generated when replication forks collide with transcription complexes stalled at DNA lesions.