MRE11-RAD50 is a key early response protein for processing DNA ends of broken chromosomes for repair, yet how RAD50 nucleotide dynamics regulate MRE11 nuclease activity is poorly understood. We report here that ATP binding and ATP hydrolysis cause a striking butterfly-like opening and closing of the RAD50 subunits, and each structural state has a dramatic functional effect on MRE11. RAD50-MRE11 has an extended conformation in solution when MRE11 is an active nuclease. However, ATP binding to RAD50 induces a closed conformation, and in this state MRE11 is an endonuclease. ATP hydrolysis opens the RAD50-MRE11 complex, and MRE11 maintains exonuclease activity. Thus, ATP hydrolysis is a molecular switch that converts MRE11 from an endonuclease to an exonuclease. We propose a testable model in which the open-closed transitions are used by RAD50-MRE11 to discriminate among DNA ends and drive the choice of recombination pathways.