Chlorella virus DNA ligase, the smallest eukaryotic ligase known, has pluripotent biological activity and an intrinsic nick-sensing function, despite having none of the accessory domains found in cellular ligases. A 2.3-A crystal structure of the Chlorella virus ligase-AMP intermediate bound to duplex DNA containing a 3'-OH-5'-PO4 nick reveals a new mode of DNA envelopment, in which a short surface loop emanating from the OB domain forms a beta-hairpin 'latch' that inserts into the DNA major groove flanking the nick. A network of interactions with the 3'-OH and 5'-PO4 termini in the active site illuminates the DNA adenylylation mechanism and the crucial roles of AMP in nick sensing and catalysis. Addition of a divalent cation triggered nick sealing in crystallo, establishing that the nick complex is a bona fide intermediate in the DNA repair pathway.