The papain-like cysteine protease 2 (PLP2) within the N-terminus of the porcine reproductive and respiratory syndrome virus (PRRSV) nsp2 replicase protein specifies a deubiquitinating enzyme (DUB), but its biochemical properties and the role in infection have remained poorly defined. By using in vitro assays, we found that the purified PLP2 could efficiently cleave K63 and K48 linked polyubiquitin chains Ub3-7 in vitro although displaying a differential activity in converting the respective ubiquitin dimers to monomer. The subsequent mutagenesis analyses revealed that the requirement for PLP2 DUB activity surprisingly resembled that for cis-cleavage activity, as several mutations (e.g., D91R, D85R, etc.) that largely ablated the DUB function also blocked the cis- but not trans-proteolytic cleavage of nsp2/3 polyprotein. Moreover, the analyses identified key mutations that could differentiate DUB from PLP2 cis- and trans-cleavage activities. Further reverse genetics analyses revealed the following findings: (i) mutations that largely blocked the DUB activity were all lethal to the virus, (ii) a point mutation T88G that selectively blocked the cis-cleavage activity of PLP2 did not affect viral viability in cell culture, and (iii) an E90Q mutation that did not affect either of the PLP2 activities led to rescue of WT-like virus but displayed significantly reduced ability to induce TNF-α production. Our findings support the possibility that the PLP2 DUB activity, but not cis-cleavage activity, is essential for PRRSV replication. The data also establish a strong link of nsp2 to pro-inflammatory cytokine induction during infection that operates in a manner independent of PLP2 DUB activity.