The mode of action of interferon in JLSV 5-cells, chronically infected with Rauscher murine leukemia virus (MLV), was studied by examining the fate of preexisting labelled viral RNA in interferon-treated cells and by determining the infectivity/physical particle ratio of cell-associated and extracellular virus. Interferon added together with 3H-uridine inhibited the production of labelled virus particles even when it was only allowed to act after all viral RNA synthesis had been stopped by actinomycin D. This indicated that the interferon-induced antiviral state primarily functions at a posttranscriptional step. When interferon was given after a 3H-uridine pulse label and arrest of label incorporation by glucosamine and unlabelled uridine, it prevented a portion of the preexisting radioactive RNA from occurring in extracellular particles. However, part of the labelled viral RNA had reached a stage beyond which interferon could not prevent it from occurring in extracellular virus particles. The notion that interferon primarily affects release of fully assembled and enveloped MLV particles may be eliminated: interferon-treatment did not affect the release of particle-bound reverse transcriptase in cells treated with cycloheximide after the antiviral state had been established. It was confirmed that interferon-treated JLSV 5-cells contained an increased number of virus particles associated with the cell membrane. However, these particles were found to have a reduced infectivity compared to those associated with control cells, thus confirming the view that virions produced by interferon-treated cells are defective; perhaps lacking in certain components.