The envelope (E) of dengue virus (DENV) is a determinant of tropism and virulence. At the C terminus of E protein, there is a stem region containing two amphipathic α-helical domains (EH1 and EH2) and a stretch of conserved sequences in between. The crystal structure of E protein at the postfusion state suggested the involvement of the stem during the fusion; however, the critical domains or residues involved remain unknown. Site-directed mutagenesis was carried out to replace each of the stem residues at the hydrophobic face with an alanine or proline in a DENV serotype 4 (DENV4) precursor membrane (prM)/E expression construct. Most of the 15 proline mutations at either EH1 or EH2 severely affected the assembly of virus-like particles (VLPs). Radioimmunoprecipitation and membrane flotation assays revealed that EH1 mutations primarily affect prM-E heterodimerization and EH2 mutations affect the membrane binding of the stem. Introducing four proline mutations at either EH1 or EH2 into a DENV2 replicon packaging system greatly affects assembly and entry. Moreover, introducing these mutations into a DENV2 infectious clone confirmed the impairment in assembly and infectivity. Sequencing analysis of adaptive mutations in passage 5 viruses revealed a change to a leucine or wild-type residue at the original site, suggesting the importance of maintaining the helical structure. Collectively, these findings suggest that the EH1 and EH2 domains are involved in both assembly and entry steps of the DENV replication cycle; this feature, together with the high degree of sequence conservation, suggests that the stem region is a potential target of antiviral strategies.