The human ISG20/HEM45 gene was identified independently on the basis of its increased level of expression in response to either interferon or estrogen hormone. Notably, the encoded protein is homologous with members of the 3' to 5' exonuclease superfamily that includes RNases T and D, and the proofreading domain of Escherichia coli DNA polymerase I. We provide here direct biochemical evidence that Isg20 acts as a 3' to 5' exonuclease in vitro. This protein displays a pH optimum of approximately 7.0, prefers Mn2+ as a metal cofactor, and degrades RNA at a rate that is approximately 35-fold higher than its rate for single-stranded DNA. Along with RNase L, Isg20 is the second known RNase regulated by interferon. Previous data showed that Isg20 is located in promyelocytic leukemia (PML) nuclear bodies, known sites of hormone-dependent RNA polymerase II transcription and oncogenic DNA viral transcription and replication. The combined data suggest a potential role for Isg20 in degrading viral RNAs as part of the interferon-regulated antiviral response and/or cellular mRNAs as a regulatory component of interferon and estrogen signaling.