Arenaviruses can cause severe hemorrhagic fever diseases in humans, with limited prophylactic or therapeutic measures. A small RING-domain viral protein Z has been shown to mediate the formation of virus-like particles and to inhibit viral RNA synthesis, although its biological roles in an infectious viral life cycle have not been directly addressed. By taking advantage of the available reverse genetics system for a model arenavirus, Pichinde virus (PICV), we provide the direct evidence for the essential biological roles of the Z protein's conserved residues, including the G2 myristylation site, the conserved C and H residues of RING domain, and the poorly characterized C-terminal L79 and P80 residues. Dicodon substitutions within the late (L) domain (PSAPPYEP) of the PICV Z protein, although producing viable mutant viruses, have significantly reduced virus growth, a finding suggestive of an important role for the intact L domain in viral replication. Further structure-function analyses of both PICV and Lassa fever virus Z proteins suggest that arenavirus Z proteins have similar molecular mechanisms in mediating their multiple functions, with some interesting variations, such as the role of the G2 residue in blocking viral RNA synthesis. In summary, our studies have characterized the biological roles of the Z protein in an infectious arenavirus system and have shed important light on the distinct functions of its domains in virus budding and viral RNA regulation, the knowledge of which may lead to the development of novel antiviral drugs.