TIA-1 positive stress granules (SG) represent the storage sites of stalled mRNAs and are often associated with the cellular antiviral response. In this report, we provide evidence that Kaposi’s sarcoma-associated herpesvirus (KSHV) overcomes the host antiviral response by inhibition of SG formation via a viral lytic protein ORF57. By immunofluorescence analysis, we found that B lymphocytes with KSHV lytic infection are refractory to SG induction. KSHV ORF57, an essential post-transcriptional regulator of viral gene expression and the production of new viral progeny, inhibits SG formation induced experimentally by arsenite and poly I:C, but not by heat stress. KSHV ORF37 (vSOX) bearing intrinsic endoribonuclease activity also inhibits arsenite-induced SG formation, but KSHV RTA, vIRF-2, ORF45, ORF59 and LANA exert no such function. ORF57 binds both PKR-activating protein (PACT) and protein kinase R (PKR) through their RNA-binding motifs and prevents PACT-PKR interaction in the PKR pathway which inhibits KSHV production. Consistently, knocking down PKR expression significantly promotes KSHV virion production. ORF57 interacts with PKR to inhibit PKR binding dsRNA and its autophosphorylation, leading to inhibition of eIF2α phosphorylation and SG formation. Homologous protein HSV-1 ICP27, but not EBV EB2, resembles KSHV ORF57 in the ability to block the PKR/eIF2α/SG pathway. In addition, KSHV ORF57 inhibits poly I:C-induced TLR3 phosphorylation. Altogether, our data provide the first evidence that KSHV ORF57 plays a role in modulating PKR/eIF2α/SG axis and enhances virus production during virus lytic infection.