Coronaviruses express a multifunctional papain-like protease, termed papain-like protease 2 (PLP2). PLP2 acts as a protease that cleaves the viral replicase polyprotein and as a deubiquitinating (DUB) enzyme which removes ubiquitin (Ub) moieties from ubiquitin-conjugated proteins. Previous in vitro studies implicated PLP2/DUB activity as a negative regulator of the host interferon (IFN) response, but the role of DUB activity during virus infection was unknown. Here, we used X-ray structure-guided mutagenesis and functional studies to identify amino acid substitutions within the ubiquitin-binding surface of PLP2 that reduced DUB activity without affecting polyprotein processing activity. We engineered a DUB mutation (Asp1772 to Ala) into a murine coronavirus and evaluated the replication and pathogenesis of the DUB mutant virus (DUBmut) in cultured macrophages and in mice. We found that the DUBmut virus replicates similarly to the wild-type (WT) virus in cultured cells, but the DUBmut virus activates an IFN response at earlier times compared to the wild-type virus infection in macrophages, consistent with DUB activity negatively regulating the IFN response. We compared the pathogenesis of the DUBmut virus to that of the wild-type virus and found that the DUBmut-infected mice had a statistically significant reduction (P < 0.05) in viral titer in liver and spleen at day 5 postinfection (d p.i.), although both wild-type and DUBmut virus infections resulted in similar liver pathology. Overall, this study demonstrates that structure-guided mutagenesis aids the identification of critical determinants of the PLP2-ubiquitin complex and that PLP2/DUB activity plays a role as an interferon antagonist in coronavirus pathogenesis.IMPORTANCE Coronaviruses employ a genetic economy by encoding multifunctional proteins that function in viral replication and also modify the host environment to disarm the innate immune response. The coronavirus papain-like protease 2 (PLP2) domain possesses protease activity, which cleaves the viral replicase polyprotein, and also DUB activity (deconjugating ubiquitin/ubiquitin-like molecules from modified substrates) using identical catalytic residues. To separate the DUB activity from the protease activity, we employed a structure-guided mutagenesis approach and identified residues that are important for ubiquitin binding. We found that mutating the ubiquitin-binding residues results in a PLP2 that has reduced DUB activity but retains protease activity. We engineered a recombinant murine coronavirus to express the DUB mutant and showed that the DUB mutant virus activated an earlier type I interferon response in macrophages and exhibited reduced replication in mice. The results of this study demonstrate that PLP2/DUB is an interferon antagonist and a virulence trait of coronaviruses.