The Mre11 complex (Mre11-Rad50-Nbs1 or MRN) binds double-strand breaks where it interacts with CtIP/Ctp1/Sae2 and ATM/Tel1 to preserve genome stability through its functions in homology-directed repair, checkpoint signaling and telomere maintenance. Here, we combine biochemical, structural and in vivo functional studies to uncover key properties of Mre11-W243R, a mutation identified in two pediatric cancer patients with enhanced ataxia telangiectasia-like disorder. Purified human Mre11-W243R retains nuclease and DNA binding activities in vitro. X-ray crystallography of Pyrococcus furiosus Mre11 indicates that an analogous mutation leaves the overall Mre11 three-dimensional structure and nuclease sites intact but disorders surface loops expected to regulate DNA and Rad50 interactions. The equivalent W248R allele in fission yeast allows Mre11 to form an MRN complex that efficiently binds double-strand breaks, activates Tel1/ATM and maintains telomeres; yet, it causes hypersensitivity to ionizing radiation and collapsed replication forks, increased Rad52 foci, defective Chk1 signaling and meiotic failure. W248R differs from other ataxia telangiectasia-like disorder analog alleles by the reduced stability of its interaction with Rad50 in cell lysates. Collective results suggest a separation-of-function mutation that disturbs interactions amongst the MRN subunits and Ctp1 required for DNA end processing in vivo but maintains interactions sufficient for Tel1/ATM checkpoint and telomere maintenance functions.