Alkaline exonucleases (AE) are present in several large DNA viruses including bacteriophage λ and herpesviruses, where they play roles in viral DNA processing during genome replication. Given the genetic conservation of AEs across viruses infecting different kingdoms of life, these enzymes likely assume central roles in the lifecycles of viruses where they have yet to be well characterized. Here, we applied a structure-guided functional analysis of the bifunctional AE in the oncogenic human gammaherpesvirus Kaposi's sarcoma-associated herpesvirus (KSHV), called SOX. In addition to identifying a preferred DNA substrate preference for SOX, we define key residues important for DNA binding and DNA processing, and how SOX activity on DNA partially overlaps with its functionally separable cleavage of mRNA. By engineering these SOX mutants into KSHV, we reveal roles for its DNase activity in viral gene expression and infectious virion production. Our results provide mechanistic insight into gammaherpesviral AE activity as well as areas of functional conservation between this mammalian virus AE and its distant relative in phage λ.