SummaryDNA loop-extruding SMC complexes play crucial roles in chromosome folding and DNA immunity. Prokaryotic SMC Wadjet (JET) complexes limit the spread of circular plasmids through DNA cleavage; yet the mechanisms for target recognition are unresolved. We show that artificial DNA circularization renders linear DNA susceptible to JET cleavage. Unlike free DNA, JET cleaves immobilized plasmid DNA at a specific site, the plasmid-anchoring point, showing that the anchor hinders DNA extrusion but not DNA cleavage implying that residual unextruded DNA is cleaved. Structures of plasmid-bound JetABC reveal two presumably stalled SMC motor units that are drastically rearranged from the resting state, together entrapping a U-shaped DNA segment, which is further converted to kinked V-shaped cleavage substrate by JetD nuclease binding. Our findings uncover mechanical bending of residual unextruded DNA as principle for non-self DNA recognition and molecular signature for plasmid cleavage. We elucidate key elements of SMC loop extrusion including motor directionality and the structure of a DNA-holding state.