There are two types of infectious vaccinia virus particles: intracellular naked virions and extracellular enveloped virions (EEV). To determine the biological role of the enveloped form of vaccinia virus, we produced and characterized a mutant that is defective in EEV formation. The strategy involved replacement by homologous recombination of the gene F13L, encoding a 37,000-Da protein (VP37) that is specific for the outer envelope of EEV, with a selectable antibiotic resistance marker, the Escherichia coli gpt gene. Initial experiments, however, suggested that such a mutation was lethal or prevented plaque formation. By employing a protocol consisting of high-multiplicity passages of intracellular virus from the transfected cells and then limiting dilution cloning, we succeeded in isolating the desired mutant, which was defective in production of plaques and extracellular virus but made normal amounts of intracellular naked virions. Electron microscopic examination indicated that the mutant virus particles, unlike wild type, were neither wrapped with Golgi-derived membranes nor associated with the cell surface. The absence of VP37 did not prevent the transport of the viral hemagglutinin to the plasma membrane but nevertheless abrogated both low-pH- and antibody-mediated cell fusion. These results indicate that VP37 is required for EEV formation and also plays a critical role in the local cell-to-cell transmission of vaccinia virus, perhaps via enveloped virions attached to or released from the cell membrane. By contrast, a mutated virus with a deletion of the K4L open reading frame, which is a homolog of the VP37 gene, was not defective in formation of plaques or EEV.