Gammaherpesviruses (GHVs) establish life-long infections and cause cancer in humans and other animals. To facilitate chronic infection, GHV oncoproteins promote cellular proliferation and differentiation. Aberrant cell-cycle progression driven by viral oncogenes should trigger activation of tumor suppressor p53, unless p53 is functionally deactivated during GHV latency establishment. However, interactions of GHVs with the p53 pathway during the establishment and maintenance of latent infection are poorly defined. Here we demonstrate in vivo that p53 is induced specifically in infected cells during latency establishment by murine gammaherpesvirus 68 (MHV68). In the absence of p53, MHV68 latency establishment was significantly increased, especially in germinal center B cells, and correlated with enhanced cellular proliferation. However, enhanced latency was not sustainable, and MHV68 exhibited a defect in long-term latency maintenance in p53-deficient mice. Moreover, IgH/c-Myc translocations were readily detected in B cells from infected p53-null mice indicating virus-driven genomic instability. These data demonstrate that p53 intrinsically restricts MHV68 latency establishment and reveal a paradigm in which a host restriction factor provides a long-term benefit to a chronic pathogen by limiting infection-associated damage.