The vesicular stomatitis virus (VSV) nucleoprotein (N) associates tightly with the viral genomic RNA. This N-RNA complex constitutes the template for the RNA-dependent RNA polymerase L, which engages the nucleocapsid via its phosphoprotein cofactor P. While N and P proteins play important roles in regulating viral gene expression, the molecular basis of this regulation remains incompletely understood. Here we show that mutations in the extreme C terminus of N cause defects in viral gene expression. To determine the underlying cause of such defects, we examined the effects of the mutations separately on encapsidation and RNA synthesis. Expression of N together with P in Escherichia coli results predominantly in the formation of decameric N-RNA rings. In contrast, nucleocapsid complexes containing the substitution NY 415A or NK 417A were more loosely coiled, as revealed by electron microscopy (EM). In addition, the N EF419/420AA mutant was unable to encapsidate RNA. To further characterize these mutants, we engineered an infectious cDNA clone of VSV and employed N-RNA templates from those viruses to reconstitute RNA synthesis in vitro. The transcription assays revealed specific defects in polymerase utilization of the template that result in overall decreased RNA quantities, including reduced amounts of leader RNA. Passage of the recombinant viruses in cell culture led to the accumulation of compensatory second-site mutations in close proximity to the original mutations, underscoring the critical role of structural features within the C terminus in regulating N function.