Eukaryotic cells employ three SMC (structural maintenance of chromosomes) complexes to control DNA folding and topology. The Smc5/6 complex plays roles in DNA repair and in preventing the accumulation of deleterious DNA junctions. To elucidate how specific features of Smc5/6 govern these functions, we reconstituted the yeast holo‐complex. We found that the Nse5/6 sub‐complex strongly inhibited the Smc5/6 ATPase by preventing productive ATP binding. This inhibition was relieved by plasmid DNA binding but not by short linear DNA, while opposing effects were observed without Nse5/6. We uncovered two binding sites for Nse5/6 on Smc5/6, based on an Nse5/6 crystal structure and cross‐linking mass spectrometry data. One binding site is located at the Smc5/6 arms and one at the heads, the latter likely exerting inhibitory effects on ATP hydrolysis. Cysteine cross‐linking demonstrated that the interaction with Nse5/6 anchored the ATPase domains in a non‐productive state, which was destabilized by ATP and DNA. Under similar conditions, the Nse4/3/1 module detached from the ATPase. Altogether, we show how DNA substrate selection is modulated by direct inhibition of the Smc5/6 ATPase by Nse5/6. SYNOPSIS The Smc5/6 complex prevents accumulation of toxic DNA junctions during DNA replication and repair, in order to enable faithful chromosome segregation in mitosis and meiosis. Biochemical reconstitution of the yeast holo‐complex reveals a central role of the Nse5/6 sub‐complex in DNA substrate selection. Nse5/6 promotes ATP‐dependent, salt‐stable DNA association of Smc5/6. Nse5/6 inhibits the Smc5/6 ATPase by preventing productive ATP binding in the absence of DNA. Nse5/6 contacts the Smc5/6 hexamer via multiple interfaces including one at the SMC joint and one at the heads. Lysine cross‐linking (XL‐MS) and cysteine cross‐linking uncover major conformational changes upon Nse5/6 association. A crystal structure of the Nse5/6 core shows a HEAT‐repeat‐like organization. Biochemical reconstitution and structural analyses provide insight into the architecture and substrate‐associated conformational changes of the yeast holo‐SMC5/6 complex.