The nucleocapsid (N) protein of nonsegmented negative-strand (NNS) RNA viruses, when expressed in eukaryotic cells, aggregates and forms nucleocapsid-like complexes with cellular RNAs. The phosphoprotein (P) has been shown to prevent such aggregation by forming a soluble complex with the N protein free from cellular RNAs (designated N(0)). The N(0)-P complex presumably mediates specific encapsidation of the viral genome RNA. The precise mechanism by which the P protein carries out this function remains unclear. Here, by using a series of deleted and truncated mutant forms of the P protein of vesicular stomatitis virus (VSV), Indiana serotype, we present evidence that the N-terminal 11 to 30 amino acids (aa) of the P protein are essential in keeping the N protein soluble. Furthermore, glutathione S-transferase fused to the N-terminal 40 aa by itself is able to form the N(0)-P complex. Interestingly, the N-terminal 40-aa stretch failed to interact with the viral genome N-RNA template whereas the C-terminal 72 aa of the P protein interacted specifically with the latter. With an in vivo VSV minigenome transcription system, we further show that a deletion mutant form of P (PDelta1-10) lacking the N-terminal 10 aa which is capable of forming the N(0)-P complex was unable to support VSV minigenome transcription, although it efficiently supported transcription in vitro in a transcription-reconstitution reaction when used as purified protein. However, the same mutant protein complemented minigenome transcription when expressed together with a transcription-defective P deletion mutant protein containing N-terminal aa 1 to 210 (PDeltaII+III). Since the minigenome RNA needs to be encapsidated before transcription ensues, it seems that the entire N-terminal 210 aa are required for efficient genome RNA encapsidation. Taking these results together, we conclude that the N-terminal 11 to 30 aa are required for N(0)-P complex formation but the N-terminal 210 aa are required for genome RNA encapsidation.