Natural Killer (NK) cells have been implicated in the response to poxviruses, but the interaction between NK and infected cells is not well characterized. We show that downregulation of class I major histocompatibility complex (MHC-I) molecules in human cells by vaccinia virus (VV) sensitizes the cells to lysis by NK cells. We provide evidence suggesting that NK cells are infected as a consequence of co-culture with infected target cells. We also show that infection of NK cells leads to a marked depression of cytotoxicity. Moreover, the effect on NK cytotoxicity occurs within hours of infection and is prevented by UV inactivation of the virus but is only partially prevented by blocking late gene expression. VV infection also renders the NK cells more sensitive to inhibitory signals. Together our observations suggest that VV infection of NK cells can modulate their signaling in a manner that prevents them from acting on infected target cells.