Kaposi's sarcoma-associated herpesvirus (KSHV), the causative agent of Kaposi's sarcoma, encodes 25 mature viral miRNAs. MCP-1-induced protein-1 (MCPIP1), a critical regulator of immune homeostasis, has been shown to suppress miRNA biosynthesis via cleavage of precursor miRNAs through its RNase domain. We demonstrate that MCPIP1 can directly cleave KSHV and EBV precursor miRNAs and that MCPIP1 expression is repressed following de novo KSHV infection. In addition, repression with siRNAs to MCPIP1 in KSHV-infected cells increased IL-6 and KSHV miRNA expression, supporting a role for MCPIP1 in IL-6 and KSHV miRNA regulation. We also provide evidence that KSHV miRNAs repress MCPIP1 expression by targeting the 3'UTR of MCPIP1. Conversely, expression of essential miRNA biogenesis components Dicer and TRBP is increased following latent KSHV infection. We propose that KSHV infection inhibits a negative regulator of miRNA biogenesis (MCPIP1) and up-regulates critical miRNA processing components to evade host mechanisms that inhibit expression of viral miRNAs. KSHV-mediated alterations in miRNA biogenesis represent a novel mechanism by which KSHV interacts with its host and a new mechanism for the regulation of viral miRNA expression.