Liver X receptor (LXR) signaling broadly restricts virus replication, however the mechanisms of restriction are poorly defined. Here, we demonstrate that the LXR-inducible cellular E3 ligase IDOL (inducible degrader of low-density lipoprotein receptor, LDLR) restricts replication of the beta-herpesvirus, human cytomegalovirus (HCMV), for the establishment of viral latency. IDOL is highly expressed in undifferentiated hematopoietic cells where HCMV establishes latency, but is sharply downregulated upon differentiation, a stimulus for reactivation. Importantly, IDOL restricts replication by driving the instability of a key viral determinant required for reactivation, the 33-kDa protein encoded by UL136 (UL136p33). UL136 encodes multiple proteins that differentially impact latency and reactivation. UL136p33 is targeted for rapid turnover by the proteasome and its stabilization by mutation of lysine residues to arginine results in a failure to quiet replication for latency. We show that IDOL interacts with and targets UL136p33 for turnover, but not the stabilized variant. While induction of IDOL prevents reactivation, IDOL depletion increases viral gene expression in undifferentiated hematopoietic cells. This work establishes the UL136p33-IDOL interaction as a key regulator of the bistable switch between latency and reactivation. It further implicates cholesterol homeostasis as a key determinant of HCMV reactivation whereby UL136p33 acts a sensor at the tipping point between the decision to maintain the latent state or exit latency for reactivation.