The yeast Mre11-Rad50-Xrs2 (MRX) complex has structural, signaling, and catalytic functions in the response to DNA damage. Xrs2, the eukaryotic-specific component of the complex, is required for nuclear import of Mre11 and Rad50 and to recruit the Tel1 kinase to damage sites. We show that nuclear-localized MR complex (Mre11-NLS) catalyzes homology-dependent repair without Xrs2, but MR cannot activate Tel1, and it fails to tether DSBs, resulting in sensitivity to genotoxins, replisome instability, and increased gross chromosome rearrangements (GCRs). Fusing the Tel1 interaction domain from Xrs2 to Mre11-NLS is sufficient to restore telomere elongation and Tel1 signaling to Xrs2-deficient cells. Furthermore, Tel1 stabilizes Mre11-DNA association, and this stabilization function becomes important for DNA damage resistance in the absence of Xrs2. Enforcing Tel1 recruitment to the nuclear MR complex fully rescues end tethering and stalled replication fork stability, and suppresses GCRs, highlighting important roles for Xrs2 and Tel1 to ensure optimal MR activity. Display omitted •Xrs2 is required for recruitment but not for activation of Tel1 kinase•Tel1 and Xrs2 function independently to optimize MR activity•Stable association of Mre11 at DSBs is required to maintain end-to-end tethering•MR-mediated DNA tethering promotes replisome stability and genome integrity Oh et al. show that Tel1 and Xrs2 function independently to optimize MR activity at double-strand breaks (DSBs) and stalled replication forks. Stable association of MR at DSBs maintains end-to-end tethering and correlates with DNA damage resistance, decreased replication stress, and suppression of genome rearrangements.