During progeny assembly, viruses selectively package virion genomes from a nucleic acid pool that includes host nucleic acids. For large dsDNA viruses, including tailed bacteriophages and herpesviruses, immature viral DNA is recognized and translocated into a preformed icosahedral shell, the prohead. Recognition involves specific interactions between the viral packaging enzyme, terminase, and viral DNA recognition sites. Generally, viral DNA is recognized by terminase's small subunit (TerS). The large terminase subunit (TerL) contains translocation ATPase and endonuclease domains. In phage lambda, TerS binds a sequence repeated three times in cosB, the recognition site. TerS binding to cosB positions TerL to cut the concatemeric DNA at the adjacent nicking site, cosN. TerL introduces staggered nicks in cosN, generating twelve bp cohesive ends. Terminase separates the cohesive ends and remains bound to the cosB-containing end, in a nucleoprotein structure called Complex I. Complex I docks on the prohead's portal vertex and translocation ensues. DNA topology plays a role in the TerSλ-cosBλ interaction. Here we show that a site, I2, located between cosN and cosB, is critically important for an early DNA packaging step. I2 contains a complex static bend. I2 mutations block DNA packaging. I2 mutant DNA is cut by terminase at cosN in vitro, but in vivo, no cos cleavage is detected, nor is there evidence for Complex I. Models for what packaging step might be blocked by I2 mutations are presented.