The vaccinia virus (VV) E3L gene, which encodes a potent inhibitor of the interferon (IFN)-induced, double-stranded RNA (dsRNA)-dependent protein kinase, PKR, is thought to be involved in the IFN-resistant phenotype of VV. The E3L gene products, p25 and p20, act as inhibitors of PKR, presumably by binding and sequestering activator dsRNA from the kinase. In this study we demonstrate that VV with the E3L gene specifically deleted (vP1080) was sensitive to the antiviral effects of IFN and debilitated in its ability to rescue vesicular stomatitis virus from the antiviral effects of IFN. Infection of L929 cells with E3L-minus virus led to rRNA degradation typical of activation of the 2'-5'-oligoadenylate synthetase/RNase L system, and extracts of infected cells lacked the PKR-inhibitory activity characteristic of wild-type VV. The reovirus S4 gene, which encodes a dsRNA-binding protein (sigma 3) that can also inhibit PKR activation by binding and sequestering activator dsRNA, was inserted into vP1080. The resultant virus (vP1112) was partially resistant to the antiviral effects of IFN in comparison with vP1080. Further studies demonstrated that transient expression of the reovirus sigma 3 protein rescued E3L-minus VV replication in HeLa cells. In these studies, rescue by sigma 3 mutants correlated with their ability to bind dsRNA. Finally, vP112 was also able to rescue the replication of the IFN-sensitive virus vesicular stomatitis virus in a manner similar to that of wild-type VV. Together, these results suggest that the reovirus S4 gene can replace the VV E3L gene with respect to interference with the IFN-induced antiviral activity.