Family D DNA polymerase (PolD) is a new type of DNA polymerase possessing polymerization and 3'-5' exonuclease activities. Here we report the characterization of the nuclease activity of PolD from Pyrococcus horikoshii. By site-directed mutagenesis, we verified that the putative Mre11-like nuclease domain in the small subunit (DP1), predicted according to computer analysis and structure inference reported previously, is the catalytic domain. We show that D363, H365 and H454 are the essential residues, while D407, N453, H500, H563 and H565 are critical residues for the activity. We provide experimental evidence demonstrating that manganese, rather than magnesium, is the preferable metal ion for the nuclease activity of PolD. We also show that DP1 alone is insufficient to perform full catalysis, which additionally requires the formation of the PolD complex and manganese ion. We found that a 21 amino acid, subunit-interacting peptide of the sequence from cysteine cluster II of the large subunit (DP2) stimulates the exonuclease activity of DP1 and the internal deletion mutants of PolD lacking the 21-aa sequence. This indicates that the putative zinc finger motif of the cysteine cluster II is deeply involved in the nucleolytic catalysis.