The Z protein is the matrix protein of arenaviruses and has been identified as the main driving force for budding. Both LCMV and Lassa virus Z proteins bud from cells in the absence of other viral proteins as enveloped virus-like particles. Z accumulates near the inner surface of the plasma membrane where budding takes place. Furthermore, biochemical data have shown that Z is strongly membrane associated. The primary sequence of Z lacks a typical transmembrane domain and until now it is not understood by which mechanism Z is able to interact with cellular membranes. In this report, we analyzed the role of N-terminal myristoylation for the membrane binding of Lassa virus Z. We show that disruption of the N-terminal myristoylation signal by substituting the N-terminal glycine with alanine (Z-G2A mutant) resulted in a significant reduction of Z protein association with cellular membranes. Furthermore, removal of the myristoylation site resulted in a relocalization of Z from a punctuate distribution to a more diffuse cellular distribution pattern. Finally, treatment of Lassa virus-infected cells with various myristoylation inhibitors drastically reduced efficient Lassa virus replication. Our data indicate that myristoylation of Z is critical for its binding ability to lipid membranes and thus, for effective virus budding.