The accumulation of deleterious mitochondrial DNA (∆mtDNA) causes inherited mitochondrial diseases and ageing-associated decline in mitochondrial functions such as oxidative phosphorylation. Following mitochondrial perturbations, the bZIP protein ATFS-1 induces a transcriptional programme to restore mitochondrial function. Paradoxically, ATFS-1 is also required to maintain ∆mtDNAs in heteroplasmic worms. The mechanism by which ATFS-1 promotes ∆mtDNA accumulation relative to wild-type mtDNAs is unclear. Here we show that ATFS-1 accumulates in dysfunctional mitochondria. ATFS-1 is absent in healthy mitochondria owing to degradation by the mtDNA-bound protease LONP-1, which results in the nearly exclusive association between ATFS-1 and ∆mtDNAs in heteroplasmic worms. Moreover, we demonstrate that mitochondrial ATFS-1 promotes the binding of the mtDNA replicative polymerase (POLG) to ∆mtDNAs. Interestingly, inhibition of the mtDNA-bound protease LONP-1 increased ATFS-1 and POLG binding to wild-type mtDNAs. LONP-1 inhibition in Caenorhabditis elegans and human cybrid cells improved the heteroplasmy ratio and restored oxidative phosphorylation. Our findings suggest that ATFS-1 promotes mtDNA replication in dysfunctional mitochondria by promoting POLG-mtDNA binding, which is antagonized by LONP-1.