Cytokines regulate viral gene expression with important consequences for viral replication and pathogenesis. Gamma interferon (IFN-γ) is a key regulator of chronic murine gammaherpesvirus 68 (γHV68) infection and a potent inhibitor of γHV68 reactivation from latency. Macrophages are the cell type that is responsive to the IFN-γ-mediated control of γHV68 reactivation; however, the molecular mechanism of this IFN-γ action is undefined. Here we report that IFN-γ inhibits lytic replication of γHV68 in primary bone marrow-derived macrophages and decreases transcript levels for the essential lytic switch gene 50. Interestingly, IFN-γ suppresses the activity of the two known gene 50 promoters, demonstrating that an inflammatory cytokine can directly regulate the promoters for the γHV68 lytic switch gene. Stat1, but not IFN-α/β signaling, is required for IFN-γ action. Moreover, Stat1 deficiency increases basal γHV68 replication, gene 50 expression, and promoter activity. Together, these data identify IFN-γ and Stat1 as being negative regulators of the γHV68 lytic cycle and raise the possibility that γHV68 maintains IFN-γ/Stat1-responsive gene 50 promoters to facilitate cell-extrinsic control over the interchange between the lytic and latent cycles.