The hepatitis C virus (HCV) nonstructural protein 2 (NS2) is a dimeric multifunctional hydrophobic protein with an essential but poorly understood role in infectious virus production. We investigated the determinants of NS2 function in the HCV life cycle. On the basis of the crystal structure of the postcleavage form of the NS2 protease domain, we mutated conserved features and analyzed the effects of these changes on polyprotein processing, replication, and infectious virus production. We found that mutations around the protease active site inhibit viral RNA replication, likely by preventing NS2-3 cleavage. In contrast, alterations at the dimer interface or in the C-terminal region did not affect replication, NS2 stability, or NS2 protease activity but decreased infectious virus production. A comprehensive deletion and mutagenesis analysis of the C-terminal end of NS2 revealed the importance of its C-terminal leucine residue in infectious particle production. The crystal structure of the NS2 protease domain shows that this C-terminal leucine is locked in the active site, and mutation or deletion of this residue could therefore alter the conformation of NS2 and disrupt potential protein-protein interactions important for infectious particle production. These studies begin to dissect the residues of NS2 involved in its multiple essential roles in the HCV life cycle and suggest NS2 as a viable target for HCV-specific inhibitors.