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Viruses face selective pressure to evade cellular antiviral responses to control the outcome of an infection. However, due to their limited genome size, viruses must adopt unique strategies to confront cellular sensors. Since its emergence in humans, SARS-CoV-2 accrued many mutations; however, the functional consequence of many such genetic changes remains unexplored. Here, we show that SARS-CoV-2 produces a truncated form of the nucleocapsid protein, called N*M210. Due to the acquisition of a viral transcription regulatory sequence (TRS) in the N gene, certain variants like Omicron produce a new viral mRNA that markedly increases N*M210 production. We show that N*M210 is a double-stranded RNA (dsRNA)-binding protein. Using its dsRNA binding motif, N*M210 inhibits multiple antiviral responses, supressing interferon, triggering processing body disassembly, and potently blocking G3BP1 foci, including stress granules and RNase L-dependent bodies. Using a panel of recombinant SARS-CoV-2 viruses (rSARS-2), we show that enhanced N*M210 production increases virus fitness in primary human cells and in mice. Furthermore, we show that during infection N*M210 improves virus fitness, in part, due to its ability to potently block G3BP1 foci. We propose a model where, to evade the cellular antiviral response, SARS-CoV-2 has evolved a mechanism to increase the production of a truncated form of the N protein, which limits activation of dsRNA-induced antiviral responses, tipping the balance in favor of the virus in the battle for control of the cell.