Natural killer (NK) cells play a key role in innate immunity by detecting alterations in self and non-self ligands via paired NK cell receptors (NKRs). Despite identification of numerous NKR-ligand interactions, physiological ligands for the prototypical NK1.1 orphan receptor remain elusive. Here, we identify a viral ligand for the inhibitory and activating NKR-P1 (NK1.1) receptors. This murine cytomegalovirus (MCMV)-encoded protein, m12, restrains NK cell effector function by directly engaging the inhibitory NKR-P1B receptor. However, m12 also interacts with the activating NKR-P1A/C receptors to counterbalance m12 decoy function. Structural analyses reveal that m12 sequesters a large NKR-P1 surface area via a “polar claw” mechanism. Polymorphisms in, and ablation of, the viral m12 protein and host NKR-P1B/C alleles impact NK cell responses in vivo. Thus, we identify the long-sought foreign ligand for this key immunoregulatory NKR family and reveal how it controls the evolutionary balance of immune recognition during host-pathogen interplay.