Lysosomal 5'->3' exonuclease that functions in nucleic-acid sensing by immune cells. Hydrolyzes phosphodiester bond in single- stranded RNA and DNA molecules, with a higher efficiency for molecules with 5' uridine and guanosine residues. It can stall at certain sites and does not necessarily proceed to complete exonucleolytic degradation, thereby producing nucleoside 3'-monophosphates but also 5'-end 5'-hydroxy deoxyribonucleotide/ribonucleotide fragments (PubMed:30111894, PubMed:30312375, PubMed:34620855, PubMed:37994783, PubMed:38537643, PubMed:38697119). Through the processing of self and exogenous RNA and DNA molecules, provides molecular signals to toll- like receptors (TLRs) in innate immunity. Partially redundant with PLD4, it cooperates with the RNase T2/RNASET2 to generate 2',3'-cGMP and cytidine-rich RNA fragments that occupy the two TLR7 ligand-binding pockets, to trigger receptor activation and signaling (PubMed:34620855, PubMed:38697119). Degrades mitochondrial CpG-rich ssDNA fragments to prevent TLR9 activation and autoinflammatory response, but it can cleave viral RNA to generate ligands for TLR7 activation and initiate antiviral immune responses (PubMed:37225734). Can exert polynucleotide phosphatase activity toward 5'-phosphorylated single-stranded DNA substrates although at a slow rate (PubMed:38537643). Regulates the homeostasis and interorganellar communication of the endolysosomal system with an overall impact on cellular removal of dysfunctional organelles via autophagy as well as proper protein and lipid turnover (PubMed:28128235, PubMed:29368044, PubMed:37225734). May play a role in myotube formation in response to ER stress (PubMed:22428023). {ECO:0000269|PubMed:22428023, ECO:0000269|PubMed:28128235, ECO:0000269|PubMed:29368044, ECO:0000269|PubMed:30111894, ECO:0000269|PubMed:30312375, ECO:0000269|PubMed:34620855, ECO:0000269|PubMed:37225734, ECO:0000269|PubMed:37994783, ECO:0000269|PubMed:38537643, ECO:0000269|PubMed:38697119}. Can alternatively catalyze the transfer (transphosphatidylation) of a glycerol group between (S,R)- lysophosphatidylglycerol (LPG) and monoacylglycerol (MAG). The reaction is characterized by an R-to-S stereo-inversion which is essential for the resistance of the produced (S,S)-bis(monoacylglycero)phosphates (BMPs) to lysosomal degradation. The resulting BMPs, are phospholipids required for the formation of lysosomal intralumenal vesicles (ILVs) where lipid degradation can occur. . This is the function of ENSG00000105223 (PLD3, phospholipase D family member 3).