In genome packaging by tailed bacteriophages and herpesviruses, a concatemeric DNA is cut and inserted into an empty procapsid. A series of cuts follow the encapsidation of each unit-length 'headful' genome, but the mechanisms by which cutting is coupled to packaging are not understood. Here we report the first biochemical characterization of a headful nuclease from bacteriophage T4. Our results show that the T4 nuclease, which resides in the C-terminal domain of large 'terminase' gp17, is a weak endonuclease and regulated by a variety of factors; Mg, NaCl, ATP, small terminase gp16 and N-terminal ATPase domain. The small terminase, which stimulates gp17-ATPase, also stimulates nuclease in the presence of ATP but inhibits in the absence of ATP suggesting interdomain crosstalk. Comparison of the 'relaxed' and 'tensed' states of the motor show that a number of basic residues lining the nuclease groove are positioned to interact with DNA in the tensed state but change their positions in the relaxed state. These results suggest that conformational changes in the ATPase center remodel the nuclease center via an interdomain 'communication track'. This might be a common regulatory mechanism for coupling DNA cutting to DNA packaging among the headful packaging nucleases from dsDNA viruses.