Membrane cholesterol plays an important role in replication of HIV-1 and other retroviruses. Here, we report that the gammaretrovirus XMRV requires cholesterol and lipid rafts for infection and replication. We demonstrate that treatment of XMRV with a low concentration (10 mM) of 2-hydroxypropyl-β-cyclodextrin (2OHpβCD) partially depleted virion-associated cholesterol resulting in complete inactivation of the virus. This effect could not be reversed by adding cholesterol back to treated virions. Further analysis revealed that following cholesterol depletion, virus-associated Env protein was significantly reduced while the virions remained intact and retained core proteins. Increasing concentrations of 2OHpβCD (≥20 mM) resulted in loss of the majority of virion-associated cholesterol, causing disruption of membrane integrity and loss of internal Gag proteins and viral RNA. Depletion of cholesterol from XMRV-infected cells significantly reduced virus release, suggesting that cholesterol and intact lipid rafts are required for the budding process of XMRV. These results suggest that unlike glycoproteins of other retroviruses, the association of XMRV glycoprotein with virions is highly dependent on cholesterol and lipid rafts.