Epstein-Barr Virus (EBV) DNase (BGLF5) is an alkaline nuclease and has been suggested to be important in the viral life cycle. However, its effect on host cells remains unknown. Serological and histopathological studies implied that EBV DNase seems to be correlated with carcinogenesis. Therefore, we investigate the effect of EBV DNase on epithelial cells. Here, we report that expression of EBV DNase induces increased formation of micronucleus, an indicator of genomic instability, in human epithelial cells. We also demonstrate, using gammaH2AX formation and comet assay, that EBV DNase induces DNA damage. Furthermore, using host cell reactivation assay, we find that EBV DNase expression repressed damaged DNA repair in various epithelial cells. Western blot and quantitative PCR analyses reveal that expression of repair-related genes is reduced significantly in cells expressing EBV DNase. Host shut-off mutants eliminate shut-off expression of repair genes and repress damaged DNA repair, suggesting that shut-off function of BGLF5 contributes to repression of DNA repair. In addition, EBV DNase caused chromosomal aberrations and increased the microsatellite instability (MSI) and frequency of genetic mutation in human epithelial cells. Together, we propose that EBV DNase induces genomic instability in epithelial cells, which may be through induction of DNA damage and also repression of DNA repair, subsequently increases MSI and genetic mutations, and may contribute consequently to the carcinogenesis of human epithelial cells.