DNA replication remains unfinished in many Drosophila polyploid cells, which harbor disproportionately fewer copies of late-replicating chromosomal regions. By analyzing paired-end high-throughput sequence data from polytene larval salivary gland cells, we define 112 underreplicated (UR) euchromatic regions 60-480 kb in size. To determine the effects of underreplication on genome integrity, we analyzed anomalous read pairs and breakpoint reads throughout the euchromatic genome. Each UR euchromatic region contains many different deletions 10-500 kb in size, while very few deletions are present in fully replicated chromosome regions or UR zones from embryo DNA. Thus, during endocycles, stalled forks within UR regions break and undergo local repair instead of remaining stable and generating nested forks. As a result, each salivary gland cell contains hundreds of unique deletions that account for their copy number reductions. Similar UR regions and deletions were observed in ovarian DNA, suggesting that incomplete replication, fork breakage, and repair occur widely in polytene cells. UR regions are enriched in genes encoding immunoglobulin superfamily proteins and contain many neurally expressed and homeotic genes. We suggest that the extensive somatic DNA instability described here underlies position effect variegation, molds the structure of polytene chromosomes, and should be investigated for possible functions.