Rabies virus nucleoprotein (N) encapsidates negative-strand genomic RNA in vivo, and this RNA-N complex, together with the nominal viral phosphoprotein (P) and RNA polymerase (L), forms the active cytoplasmic ribonucleoprotein (RNP) complex in virus-infected cells and the RNP core in virus particles. The RNP complex is capable of initiating viral RNA transcription and replication in vivo and in vitro. To obtain insight into the events leading to the formation of the RNA-N complex, we have investigated the interaction between rabies virus N and the positive-strand leader RNA transcript. Binding studies revealed that recombinant N binds preferentially to rabies virus leader RNA and that N binding to leader RNA was 5 to 10 times stronger than to nonleader RNA. Encapsidation of leader RNA by N could be competetively inhibited by unlabeled leader RNA but not by nonleader RNA. Furthermore, N protein encapsidation of nonleader RNA but not the leader RNA was inhibited when P was simultaneously added into the encapsidation reaction, indicating that P helps confer the specificity of leader RNA encapsidation by N. The initiation signal for leader RNA encapsidation by N has been mapped to nucleotides 20-30 of the RNA sequence which is A rich. Studies with N-deletion mutants indicate that the intact N is required to encapsidate RNA, since deletion of amino acid residues from either the N- or the C-terminus of N abolishes the ability of N to encapsidate leader RNA.