In infected cells, hepatitis C virus (HCV) core protein is targeted to lipid droplets, which serve as intracellular storage organelles. Using a tissue culture system to generate infectious HCV, we have shown that the coating of lipid droplets by the core protein occurs in a time-dependent manner and coincides with higher rates of virus production. At earlier times, the protein was located at punctate sites in close proximity to the edge of lipid droplets. Investigations by using Z-stack analysis have shown that many lipid droplets contained a single punctate site that could represent positions where core transfers from the endoplasmic reticulum membrane to droplets. The effects of lipid droplet association on virus production were studied by introducing mutations into the domain D2, the C-terminal region of the core protein necessary for droplet attachment. Alteration of a phenylalanine residue that was crucial for lipid droplet association generated an unstable form of the protein that could only be detected in the presence of a proteasome inhibitor. Moreover, converting two proline residues in D2 to alanines blocked coating of lipid droplets by core, although the protein was directed to punctate sites that were indistinguishable from those observed at early times for wild-type core protein. Neither of these virus mutants gave rise to virus progeny. By contrast, mutation at a cysteine residue positioned 2 aa upstream of the phenylalanine residue did not affect lipid droplet localization and produced wild-type levels of infectious progeny. Taken together, our findings indicate that lipid droplet association by core is connected to virus production.