Porcine epidemic diarrhea virus (PEDV) causes severe economic losses in the swine industry in China and other Asian countries. Infection usually leads to an acute, often lethal diarrhea in piglets. Despite the impact of the disease, no system is yet available to manipulate the viral genome which has severely hampered research on this virus until today. We have established a reverse genetics system for PEDV based on targeted RNA recombination that allows the modification of the 3'-end of the viral genome, which encodes the structural proteins and the ORF3 protein. Using this system, we deleted the ORF3 gene entirely from the viral genome and showed that the ORF3 protein is not essential for replication of the virus in vitro. In addition, we inserted heterologous genes (i.e. the GFP and Renilla luciferase genes) at two positions in the viral genome, either as an extra expression cassette or as a replacement for the ORF3 gene. We demonstrated the expression of both GFP and Renilla luciferase as well as the application of these viruses by establishing a convenient and rapid virus neutralization assay. The new PEDV reverse genetics system will enable functional studies of the structural proteins and the accessory ORF3 protein and will allow the rational design and development of next generation PEDV vaccines.