Despite unprecedented efforts, our therapeutic arsenal against SARS-CoV-2 remains limited. The conserved macrodomain 1 (Mac1) in NSP3 is an enzyme exhibiting ADP-ribosylhydrolase activity and a possible drug target. To determine the therapeutic potential of Mac1 inhibition, we generated recombinant viruses and replicons encoding catalytically inactive NSP3 Mac1 domain by mutating a critical asparagine in the active site. While substitution to alanine (N40A) reduced activity by ~10-fold, mutations to aspartic acid (N40D) reduced the catalytic activity by ~100-fold relative to wildtype activity. Importantly, the N40A mutation rendered Mac1 unstable in vitro and lowered expression levels in bacterial and mammalian cells. When incorporated into SARS-CoV-2 molecular clones, the N40D mutant only modestly affected viral fitness in immortalized cell lines, but reduced viral replication in human airway organoids by 10-fold. In mice, N40D replicated at >1000-fold lower levels while inducing a robust interferon response, and all infected animals survived infection with the mutant, but not the wildtype virus. Our data validate SARS-CoV-2 NSP3 Mac1 domain as a critical viral pathogenesis factor and a reasonable target to develop antivirals, while emphasizing the importance of amino acid identity in viral mutagenesis studies and underscoring the limitations of solely relying on in vitro viral replication studies for target validation.