DNA replication is essential prerequisite for successful cell division. Its accurate and timely execution is crucial for maintenance of genome stability. At the same time, the integrity of DNA is constantly challenged by endogenous as well as exogenous factors that may impinge on the progression of DNA replication by stalling the replication forks. An intricate network of pathways, collectively known as DNA damage tolerance (DDT), operates to restart the stalled replication forks. The choice of a particular pathway is governed by PCNA and its post-translational modifications, mainly (poly)ubiquitination and to a lesser extent SUMOylation. PCNA is the key replication factor that recruits a diverse array of factors required for both replication and DDT. Polyubiquitination of PCNA is triggered at sites where replication forks stall. ZRANB3 is the only vertebrate factor known to be recruited these sites. ZRANB3 can act in two modes: it may remodel the stalled replication forks thereby promoting bypass of DNA damage, or it may initiate DNA repair by creating a nick on the leading strand ahead of the replication fork. The molecular mechanism of the latter mode is poorly understood. We therefore focused our interest on understanding how ZRANB3 nicks DNA using its nuclease domain of HNH type. We determined the structure of the HNH domain and performed a detailed mutational analysis. Additionally, we studied the role that PCNA has in regulating the nuclease activity both at a functional and structural level. Interestingly, we found that the HNH domain of ZRANB3 contains a unique insertion that is essential for its activity. Moreover, we found out that PCNA stimulates the nuclease activity of ZRANB3 via a direct protein-protein interaction. Taken together, our data indicate that PCNA first recruits ZRANB3 to its site of action, but later plays a distinct role in promoting its nuclease activity. Importantly, we reveal that a subset of cancer-associated mutations in ZRANB3 abolish its nuclease activity.