The cowpox virus (CPV) glycoprotein serpin SPI-3, a functional protease inhibitor, and the viral hemagglutinin (HA) are required to prevent fusion of wt CPV infected cells. SPI-3 and HA from CPV infected cells co-localize to the plasma membrane and are found in extracellular enveloped virus (EEV). We also show that an N-terminal SPI-3 signal sequence, but not glycosylation, is required for membrane localization and fusion inhibition. In the absence of HA (CPVDeltaHA), no SPI-3 is found on the membrane and infected cells fuse. Conversely, HA from both wt CPV and CPVDeltaSPI-3 infections is on the membrane, indicating a requirement of HA for SPI-3 plasma membrane localization. In the absence of HA, secretion of SPI-3 or SPI-3 N-glyc(-) was markedly enhanced, suggesting HA serves to retain SPI-3 on the plasma membrane,thereby preventing cell fusion.