Flaviviruses are assembled intracellularly in an immature form containing heterodimers of two envelope proteins, E and prM. Shortly before the virion exits the cell, prM is cleaved by a cellular enzyme, and this processing step can be blocked by treatment with agents that raise the pH of exocytic compartments. We carried out in vivo and in vitro studies with tick-borne encephalitis (TBE) virus to investigate the possible role of furin in this process as well as the functional consequences of prM cleavage. We found that prM in immature virions can be correctly cleaved in vitro by recombinant bovine furin but that efficient cleavage occurs only after exposure of the virion to mildly acidic pH. The data suggest that exposure to an acidic environment induces an irreversible structural change that renders the cleavage site accessible to the enzyme. Cleavage by furin in vitro resulted in biological activation, as shown by a 100-fold increase in specific infectivity, the acquisition of membrane fusion and hemagglutination activity, and the ability of the envelope proteins to undergo low-pH-induced structural rearrangements characteristic of mature virions. In vivo, prM cleavage was blocked by a furin inhibitor, and infection of the furin-deficient cell line LoVo yielded only immature virions, suggesting that furin is essential for cleavage activation of flaviviruses.