Nuclear localization of paramyxovirus proteins is crucial for virus life cycle, including the regulation of viral replication and the evasion of host immunity. We previously showed that a recombinant Newcastle disease virus (NDV) with nuclear localization signal mutation in the matrix (M) protein results in a pathotype change and attenuates viral pathogenicity in chickens. However, little is known about the nuclear localization functions of NDV M protein. In this study, the potential functions of the M protein in the nucleus were investigated. We first demonstrate that nuclear localization of the M protein could not only promote the cytopathogenicity of NDV but also increase viral RNA synthesis and transcription efficiency in DF-1 cells. Using microarray analysis, we found that nuclear localization of the M protein might inhibit host cell transcription, represented by numerous up-regulating genes associated with transcriptional repressor activity and down-regulating genes associated with transcriptional activator activity. The role of representative up-regulated gene prospero homeobox 1 (PROX1) and down-regulated gene aryl hydrocarbon receptor (AHR) in the replication of NDV was then evaluated. The results show that siRNA-mediated knockdown of PROX1 or AHR significantly reduced or increased the viral RNA synthesis and viral replication, respectively, demonstrating the important roles of the expression changes of these genes in NDV replication. Together, our findings demonstrate for the first time that nuclear localization of NDV M protein promotes virus replication by affecting viral RNA synthesis and transcription and inhibiting host cell transcription, improving our understanding of the molecular mechanism of NDV replication and pathogenesis.