An additive manufacturing system is disclosed for use in fabricating a composite structure. The additive manufacturing system may include a print head configured to discharge a continuous reinforcement that is at least partially wetted with a matrix, and a support configured to move the print head in at least one dimension during discharge. The additive manufacturing system may also include a cutting mechanism connected to at least one of the print head and the support. The cutting mechanism may be configured to selectively sever the continuous reinforcement from the print head. The cutting mechanism may include a cutting implement, a first actuator configured to move the cutting implement from a stowed position to a deployed position, and a second actuator configured to engage the cutting implement with the continuous reinforcement.