Halogenated squaraine dyes 1 and 2 possess favorable photophysical and in vitro photobiological properties that make these new class of molecules interesting for photodynamic therapeutic applications. For a better understanding of the mechanism of their photobiological activity, we have analyzed the DNA damage and the cytotoxicity induced by these photosensitizers in mammalian cells and cell-free systems in the presence and absence of various additives and scavengers. Both photoactivated squaraines were found to be similar efficient in inducing single-strand breaks (SSB) in cell-free DNA when compared with the cellular DNA. Superoxide dismutase and catalase did not show any influence. However, the presence of tert-butanol and glutathione inhibited the formation of the DNA SSB, indicating an indirect (possibly squaraine radical mediated) mechanism under cell-free conditions. Replacing H₂O in the buffer by D₂O resulted in a five- to six-fold increase in the number of the SSB in cell-free DNA and a significant enhancement of the photocytotoxicity in mouse lymphoma cells. The results demonstrate that singlet oxygen is the major reactive species under cell-free and cellular conditions and confirm that squaraine-based sensitizers 1 and 2 can have potential applications in photodynamic therapy.