Activation-induced cytidine deaminase (AID) is specifically induced in germinal center B cells to carry out somatic hypermutation and class-switch recombination, two processes responsible for antibody diversification. Because of its mutagenic potential, AID expression and activity are tightly regulated to minimize unwanted DNA damage. Surprisingly, AID expression has been observed ectopically during pathogenic infections. However, the function of AID outside of the germinal centers remains largely uncharacterized. In this study, we demonstrate that infection of human primary naïve B cells with Kaposi's sarcoma-associated herpesvirus (KSHV) rapidly induces AID expression in a cell intrinsic manner. We find that infected cells are marked for elimination by Natural Killer cells through upregulation of NKG2D ligands via the DNA damage pathway, a pathway triggered by AID. Moreover, without having a measurable effect on KSHV latency, AID impinges directly on the viral fitness by inhibiting lytic reactivation and reducing infectivity of KSHV virions. Importantly, we uncover two KSHV-encoded microRNAs that directly regulate AID abundance, further reinforcing the role for AID in the antiviral response. Together our findings reveal additional functions for AID in innate immune defense against KSHV with implications for a broader involvement in innate immunity to other pathogens.