Phosphates along the DNA function as chemical energy frequently used by nucleases to drive their enzymatic reactions. Exonuclease functions as a machine that converts chemical energy of the phosphodiester-chain into mechanical work. However, the roles of phosphates during exonuclease activities are unknown. We employed lambda exonuclease as a model system and investigated the roles of phosphates during degradation via single-molecule fluorescence resonance energy transfer (FRET). We found that 5 ' phosphates, generated at each cleavage step of the reaction, chemo-mechanically facilitate the subsequent post-cleavage melting of the terminal base pairs. Degradation of DNA with a nick requires backtracking and thermal fraying at the cleavage site for re-initiation via the formation of a catalytically active complex. Unexpectedly, we discovered that a phosphate of a 5 ' recessed DNA acts as a hotspot for an allosteric trimeric-ring assembly without passing through the central channel. Our study provides new insight into the versatile roles of phosphates during the processive enzymatic reaction.