The mature capsid protein C of flaviviruses is generated through the proteolytic cleavage of the precursor polyprotein by the viral NS2B/3 protease. This cleavage is a prerequisite for the subsequent processing of the viral surface protein prM, and the concerted progression of these events plays a key role in the process of the assembly of infectious virions. Protein C of tick-borne encephalitis virus (TBEV) contains two amino acid sequence motifs within the carboxy-terminal region that match the canonical NS2B/3 recognition site. Site-specific mutagenesis in the context of the full-length TBEV genome was used to investigate the in vivo cleavage specificity of the viral protease in this functionally important domain. The results indicate that the downstream site is necessary and sufficient for efficient cleavage and virion assembly; in contrast, the upstream site is dispensable and placed in a structural context that renders it largely inaccessible to the viral protease. Mutants with impaired C-prM cleavage generally exhibited a significantly increased cytotoxicity. In spite of the clear preference of the protease for only one of the two naturally occurring motifs, the enzyme was unexpectedly tolerant to both the presence of a noncanonical threonine residue at position P2 and the position of cleavage relative to the adjacent internal prM signal sequence. The insertion of three amino acid residues downstream of the cleavage site did not change the viral phenotype. Thus, this study further illuminates the specificity of the TBEV protease and reveals that the carboxy-terminal region of protein C has a remarkable functional flexibility in its role in the assembly of infectious virions.