The S4 gene of reovirus encodes a double-stranded RNA-binding protein, sigma 3, that can inhibit activation of the interferon-induced dsRNA-dependent protein kinase, PKR. In this study, we attempted to localize the region of sigma 3 involved in dsRNA-binding by constructing deletion and point mutations, expressing the mutated proteins in COS cells, and testing the ability of the native mutated proteins to bind dsRNA-agarose. Transfection of S4 into COS cells resulted in expression of two forms of sigma 3, a full-length protein, and a protein containing a small truncation at the amino-terminal end. The truncation is likely due to a proteolytic event. Deletions of as few as 10 amino acids from the amino-terminal end of the protein or 10 amino acids from the carboxyl-terminal end of the protein resulted in loss of dsRNA-binding activity. A putative dsRNA-binding domain has previously been localized to an 85 amino acid region located between amino acids 234 and 297 (Miller, J. E., and Samuel, C. E., J. Virol. 66, 5347-5356 1992). Mutagenesis of basic residues located within two distinct motifs of this region showed that some basic residues are absolutely required for binding to dsRNA while others can be changed with little effect.