Herpesviruses establish a lifelong latent infection posing the risk for virus reactivation and disease. In cytomegalovirus infection, expression of the major immediate early (IE) genes is a critical checkpoint, driving the lytic replication cycle upon primary infection or reactivation from latency. While it is known that type I interferon (IFN) limits lytic CMV replication, its role in latency and reactivation has not been explored. In the model of mouse CMV infection, we show here that IFNβ blocks mouse CMV replication at the level of IE transcription in IFN-responding endothelial cells and fibroblasts. The IFN-mediated inhibition of IE genes was entirely reversible, arguing that the IFN-effect may be consistent with viral latency. Importantly, the response to IFNβ is stochastic, and MCMV IE transcription and replication were repressed only in IFN-responsive cells, while the IFN-unresponsive cells remained permissive for lytic MCMV infection. IFN blocked the viral lytic replication cycle by upregulating the nuclear domain 10 (ND10) components, PML, Sp100 and Daxx, and their knockdown by shRNA rescued viral replication in the presence of IFNβ. Finally, IFNβ prevented MCMV reactivation from endothelial cells derived from latently infected mice, validating our results in a biologically relevant setting. Therefore, our data do not only define for the first time the molecular mechanism of IFN-mediated control of CMV infection, but also indicate that the reversible inhibition of the virus lytic cycle by IFNβ is consistent with the establishment of CMV latency.