Chronic infection by hepatitis C virus (HCV) is a leading cause of liver disease for which better therapies are urgently needed. Because a clearer understanding of the viral life cycle may suggest novel anti-viral approaches, we studied the role of host signal peptide peptidase (SPP) in viral infection. This intramembrane protease cleaves within a C-terminal signal sequence in the viral core protein, but the molecular determinants of cleavage and whether it is required for infection in vivo are unknown. To answer these questions, we studied SPP processing in GB virus B (GBV-B) infection. GBV-B is the closest phylogenetic relative of HCV and offers an accurate surrogate model for HCV infection. We demonstrate that SPP also processes GBV-B core protein and that a serine residue in the hydrophobic region of the signal sequence (present also in HCV) is critical for efficient SPP cleavage. The small size of the serine side chain combined with its ability to form intra- and interhelical hydrogen bonds likely contributes to recognition of the signal sequence as a substrate for SPP. By introducing mutations with differing effects on SPP processing into an infectious GBV-B molecular clone, we demonstrate that SPP processing of the core protein is required for productive infection in primates. These results broaden our understanding of the mechanism and requirements for SPP cleavage and reveal a functional role in vivo for intramembrane proteolysis in host-pathogen interactions. Moreover, they identify SPP as a potential therapeutic target for reducing the impact of HCV infection.