Understanding the molecular basis of innate immune evasion by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) is an important consideration for designing the next wave of therapeutics. Here, we investigate the role of the nonstructural protein 16 (NSP16) of SARS-CoV-2 in infection and pathogenesis. NSP16, a ribonucleoside 2'-O-methyltransferase (MTase), catalyzes the transfer of a methyl group to mRNA as part of the capping process. Based on observations with other CoVs, we hypothesized that NSP16 2'-O-MTase function protects SARS-CoV-2 from cap-sensing host restriction. Therefore, we engineered SARS-CoV-2 with a mutation that disrupts a conserved residue in the active site of NSP16. We subsequently show that this mutant is attenuated both in vitro and in vivo, using a hamster model of SARS-CoV-2 infection. Mechanistically, we confirm that the NSP16 mutant is more sensitive than wild-type SARS-CoV-2 to type I interferon (IFN-I) in vitro. Furthermore, silencing IFIT1 or IFIT3, IFN-stimulated genes that sense a lack of 2'-O-methylation, partially restores fitness to the NSP16 mutant. Finally, we demonstrate that sinefungin, an MTase inhibitor that binds the catalytic site of NSP16, sensitizes wild-type SARS-CoV-2 to IFN-I treatment and attenuates viral replication. Overall, our findings highlight the importance of SARS-CoV-2 NSP16 in evading host innate immunity and suggest a target for future antiviral therapies. IMPORTANCE Similar to other coronaviruses, disruption of severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) NSP16 function attenuates viral replication in a type I interferon-dependent manner. In vivo, our results show reduced disease and viral replication at late times in the hamster lung, but an earlier titer deficit for the NSP16 mutant (dNSP16) in the upper airway. In addition, our results confirm a role for IFIT1 but also demonstrate the necessity of IFIT3 in mediating dNSP16 attenuation. Finally, we show that targeting NSP16 activity with a 2'-O-methyltransferase inhibitor in combination with type I interferon offers a novel avenue for antiviral development.