SARS-CoV-2 continues to pose a threat to public health. Current therapeutics remain limited to direct acting antivirals that lack distinct mechanisms of action and are already showing signs of viral resistance. The virus encodes an ADP-ribosylhydrolase macrodomain (Mac1) that plays an important role in the coronaviral lifecycle by suppressing host innate immune responses. Genetic inactivation of Mac1 abrogates viral replication in vivo by potentiating host innate immune responses. However, it is unknown whether this can be achieved by pharmacologic inhibition and can therefore be exploited therapeutically. Here we report a potent and selective lead small molecule, AVI-4206, that is effective in an in vivo model of SARS-CoV-2 infection. Cellular models indicate that AVI-4206 has high target engagement and can weakly inhibit viral replication in a gamma interferon- and Mac1 catalytic activity-dependent manner; a stronger antiviral effect for AVI-4206 is observed in human airway organoids. In an animal model of severe SARS-CoV-2 infection, AVI-4206 reduces viral replication, potentiates innate immune responses, and leads to a survival benefit. Our results provide pharmacological proof of concept that Mac1 is a valid therapeutic target via a novel immune-restoring mechanism that could potentially synergize with existing therapies targeting distinct, essential aspects of the coronaviral life cycle. This approach could be more widely used to target other viral macrodomains to develop antiviral therapeutics beyond COVID-19.