The MRE11/RAD50/NBS1 (MRN) complex is a sensor for DNA breaks. In response to DNA breaks, MRN activates a global DNA damage response (DDR) through the kinase ATM that prevents cell cycle progression and cell proliferation. Critical to the amplification of the DDR is the phosphorylation of H2AX ([gamma]H2AX), a histone that is broadly distributed throughout cellular chromatin. Here we show that MRN-ATM activates a distinct signaling response to defend the cell against DNA viruses. We reveal a critical localized MRN-ATM response that is inactivated by Adenovirus E1B-55K/E4-ORF3 early viral oncoproteins and a subsequent MRN independent global DDR that does not impact viral replication. Using Adenovirus E1B-55K/E4-ORF3 mutants, we show that MRN binds to replicating Adenovirus genomes, where it activates a localized ATM response that prevents viral but not cellular DNA replication. In contrast to cellular DNA breaks, MRN-ATM activation on the miniscule Adenovirus genome is not amplified by [gamma]H2AX across chromatin and does not induce DDR foci and global signaling, hallmarks of cellular DNA damage. Thus, the MRN-ATM response to replicating Adenovirus genomes is uncoupled from the response to cellular DNA breaks. The uncoupling of the cellular and anti-viral MRN- ATM responses permits infected cells to divide and implies that DDR foci and signal amplification have evolved as mechanisms to distinguish 'self' and 'non-self' pathological DNA and mediate an appropriate response. Furthermore, cellular DNA breaks can sequester MRN from sensing viral genomes, thus rescuing Adenovirus genome replication. This demonstrates that that cellular DNA damage dampens the host defenses to viral replication which best explains the increased permissiveness for viral genome replication in tumor cell lines. Importantly, this work suggests that elevated genomic instability in cancer cells can be targeted for the development of oncolytic viruses that selectively replicate in cancer cells