The outer envelope of vaccinia virus extracellular virions is derived from intracellular membranes that, at late times in infection, are enriched in several virus-encoded proteins. Although palmitoylation is common in vaccinia virus envelope proteins, little is known about the role of palmitoylation in the biogenesis of the enveloped virus. We have studied the palmitoylation of B5, a 42 kDa type I transmembrane glycoprotein comprising a large ectodomain and a short (17 aa) cytoplasmic tail. Mutation of two cysteine residues located in the cytoplasmic tail in close proximity to the transmembrane domain abrogated palmitoylation of the protein. Virus mutants expressing non-palmitoylated versions of B5 and/or lacking most of the cytoplasmic tail were isolated and characterized. Cell-to-cell virus transmission and extracellular virus formation were only slightly affected by those mutations. Notably, B5 versions lacking palmitate showed decreased interactions with proteins A33 and F13, but were still incorporated into the virus envelope. Expression of mutated B5 by transfection into uninfected cells showed that both the cytoplasmic tail and palmitate have a role in the intracellular transport of B5. These results indicate that the C-terminal portion of protein B5, while involved in protein transport and in protein–protein interactions, is broadly dispensable for the formation and egress of infectious extracellular virus and for virus transmission.