The innate immune system is critical in the response to infection by pathogens and it is activated by pattern recognition receptors (PRRs) binding to pathogen associated molecular patterns (PAMPs). During viral infection, the direct recognition of the viral nucleic acids, such as the genomes of DNA viruses, is very important for activation of innate immunity. Recently, DNA-dependent protein kinase (DNA-PK), a heterotrimeric complex consisting of the Ku70/Ku80 heterodimer and the catalytic subunit DNA-PKcs was identified as a cytoplasmic PRR for DNA that is important for the innate immune response to intracellular DNA and DNA virus infection. Here we show that vaccinia virus (VACV) has evolved to inhibit this function of DNA-PK by expression of a highly conserved protein called C16, which was known to contribute to virulence but by an unknown mechanism. Data presented show that C16 binds directly to the Ku heterodimer and thereby inhibits the innate immune response to DNA in fibroblasts, characterised by the decreased production of cytokines and chemokines. Mechanistically, C16 acts by blocking DNA-PK binding to DNA, which correlates with reduced DNA-PK-dependent DNA sensing. The C-terminal region of C16 is sufficient for binding Ku and this activity is conserved in the variola virus (VARV) orthologue of C16. In contrast, deletion of 5 amino acids in this domain is enough to knockout this function from the attenuated vaccine strain modified vaccinia virus Ankara (MVA). In vivo a VACV mutant lacking C16 induced higher levels of cytokines and chemokines early after infection compared to control viruses, confirming the role of this virulence factor in attenuating the innate immune response. Overall this study describes the inhibition of DNA-PK-dependent DNA sensing by a poxvirus protein, adding to the evidence that DNA-PK is a critical component of innate immunity to DNA viruses.