Although the mechanism of simian virus 40 (SV40) DNA replication has been extensively investigated with cell extracts, viral DNA replication in productively infected cells utilizes additional viral and host functions whose interplay remains poorly understood. We show here that in SV40-infected primate cells, the activated ataxia telangiectasia-mutated (ATM) damage-signaling kinase, γ-H2AX, and Mre11-Rad50-Nbs1 (MRN) assemble with T antigen and other viral DNA replication proteins in large nuclear foci. During infection, steady-state levels of MRN subunits decline, although the corresponding mRNA levels remain unchanged. A proteasome inhibitor stabilizes the MRN complex, suggesting that MRN may undergo proteasome-dependent degradation. Analysis of mutant T antigens with disrupted binding to the ubiquitin ligase CUL7 revealed that MRN subunits are stable in cells infected with mutant virus or transfected with mutant viral DNA, implicating CUL7 association with T antigen in MRN proteolysis. The mutant genomes produce fewer virus progeny than the wild type, suggesting that T antigen-CUL7-directed proteolysis facilitates virus propagation. Use of a specific ATM kinase inhibitor showed that ATM kinase signaling is a prerequisite for proteasome-dependent degradation of MRN subunits as well as for the localization of T antigen and damage-signaling proteins to viral replication foci and optimal viral DNA replication. Taken together, the results indicate that SV40 infection manipulates host DNA damage-signaling to reprogram the cell for viral replication, perhaps through mechanisms related to host recovery from DNA damage.