In eukaryotes, the repair of DSBs is accomplished through two broadly defined processes: Non-Homologous End Joining (NHEJ) and Homologous Recombination (HR). The central step of HR is pairing and exchange of strands between two homologous DNA molecules, which is catalyzed by the conserved Rad51/RecA family of proteins. Prior to this step, an essential step in all HR pathways i.e. 5'→3' resection of broken DNA ends to generate 3' single stranded DNA tails. At the molecular level, initiation of DNA end resection is accomplished through the concerted action of MRX complex (Mre11, Rad50 and Xrs2) and Sae2 protein. To elucidate the molecular basis underlying DSB end resection in S. cerevisiae mre11 nuclease deficient mutants, we have performed a comprehensive analysis of the role of S. cerevisiae Mre11 (henceforth called as ScMre11) in the processing of DSB ends using a variety of DNA substrates. We observed that S. cerevisiae Mre11(ScMre11) exhibits higher binding affinity for single- over double-stranded DNA and intermediates of recombination and repair and catalyzes robust unwinding of substrates possessing a3' single-stranded DNA overhang but not of 5' overhangs or blunt-ended DNA fragments. Furthermore, reconstitution of DSB end resection network in-vitro revealed that Rad50, Xrs2, and Sae2 potentiated the DNA unwinding activity of Mre11. Since the exonuclease activity of Mre11 is of the opposite polarity to that expected for resection of DSBs, unwinding activity of Mre11 in conjunction with Rad50, Xrs2, and Sae2 might provide an alternate mechanism for the generation of ssDNA intermediates for DSB end repair and HR. Additionally, ScMre11 displays strong homotypic as well as heterotypic interaction with Sae2. In summary, our results revealed important insights into the mechanism of DSB end processing and support a model in which Sae2, Rad50, and Xrs2 positively regulate the ScMre11-mediated DNA unwinding activity via their direct interactions or through allosteric effects on the DNA or cofactors. Prompted by the closer association of MRX and Sae2 during DSB end processing, we asked whether Sae2 and its endonuclease activity is required for cellular response to replication stress caused by DNA damage. Toward this end, we examined the sensitivity of S. cerevisiae wild type, sae2Δ and various SAE2 mutant strains defective in phosphorylation and nuclease activity in the presence of different genotoxic agents, which directly or indirectly generate DSBs during replication. We found that S. cerevisiae lacking SAE2 show decreased cell viability, altered cell cycle dynamics after DNA damage, and more specifically, that Sae2 endonuclease activity is essential for these biological functions. To corroborate the genetic evidences for role of SAE2 during replicative stress, we investigated SAE2 functions in-vitro. For this, we purified native Sae2 protein and nuclease dead mutant of Sae2 i.e. sae2G270D. Our studies revealed dimeric forms of both the wild type and mutant forms of Sae2. Furthermore, Sae2 displays higher binding affinity and catalytic activity with branched DNA structures, such as Holliday junction and replication forks. By using nuclease dead Sae2 protein i.e. sae2G270D, we confirmed that the endonuclease activity is not fortuitous and is intrinsic to Sae2 polypeptide. Furthermore, nuclease-defective Mre11 stimulates Sae2endonuclease activity. Mapping of the cleavage sites of Sae2 revealed a distinct preference for cleavage on the 5' end of the Holliday junction, suggesting the importance of Sae2 nuclease during recombination mediated restart of the reversed replication fork. In summary, our data clearly demonstrate a previously uncharacterized role for Sae2 nuclease activity in resection of DSB ends, processing of intermediates of DNA replication/repair and attenuation of DNA replication stress-related defects in S. cerevisiae.