The p53 tumor suppressor functions as a transcription factor and plays a pivotal role in regulation of cellular response to DNA damage by activating various genes including those involved in cell cycle arrest. p53 stability is essential for its function during stress response; however, the molecular mechanism for DNA damage-induced stabilization of p53 is not fully understood. In our present study, we have identified SMG7 (suppressor with morphological defects in genitalia 7), also known as EST1C, as a novel p53-binding protein. SMG7 is an mRNA surveillance factor implicated in degradation of p53 mRNA-containing nonsense mutations, yet it is completely unknown whether SMG7 regulates p53 function. Here, we show that SMG7 has a crucial role in p53-mediated response to genotoxic stress by regulating p53 stability. Using somatic gene knockout, we found that deletion of SMG7 abrogates DNA damage-induced p53 stabilization, although it exhibits minimal effect on the basal levels of p53. Importantly, loss of SMG7 impairs p53-mediated activation of p21 and cell cycle arrest following DNA damage. Pharmacological inhibition of Mdm2, a major E3 ubiquitin ligase for p53, restored p53 stability in gamma-irradiated SMG7-deficient cells. Furthermore, SMG7 physically interacts with Mdm2 and promotes ATM-mediated inhibitory phosphorylation of Mdm2 following ionizing radiation. Therefore, our present data demonstrate that SMG7 is critical for p53 function in DNA damage response, and reveal the SMG7-mediated phosphorylation of Mdm2 as a previously unknown mechanism for p53 regulation.