The vaccinia virus L1R gene product is a late protein destined for insertion into the envelope of intracellular virus particles. Because this protein is co-translationally modified by the addition of myristic acid to the penultimate NH2-terminal glycine residue, it was of interest to identify the modification signal within the L1R protein and to assess the relevance of myristylation to protein localization. To this end, a family of chimeric reporter genes containing 0-13 codons from the NH2 terminus of the L1R open reading frame fused in-frame to the bacterial chloramphenicol acetyltransferase gene was constructed. The encoded proteins were tested as myristylation substrates in cell-free extracts and infected cells. The results obtained in vitro and in vivo were similar and suggested that although the NH2-terminal 5 amino acids of the L1R protein were the minimum signal required to observe modification by myristate, 12 amino acids were required to obtain wild type levels of myristylation with a modulating role played by the intervening amino acid residues. Furthermore, subcellular fractionation of infected cells expressing the fusion proteins indicated that the NH2 terminus of the L1R protein was capable of targeting the fusion proteins to membrane-containing fractions only if myristylated. In particular, the myristylated fusion protein containing the first 12 amino acids of the L1R protein abutted to the chloramphenicol acetyltransferase protein was found associated with the envelope of intracellular vaccinia virus particles.