Pestiviruses contain three envelope proteins: Erns, E1, and E2. Expression of HA-tagged E1 or mutants thereof showed that E1 forms homodimers and -trimers. C123 and, to a lesser extent, C171, affected the oligomerization of E1 with a double mutant C123S/C171S preventing oligomerization completely. E1 also establishes disulfide linked heterodimers with E2, which are crucial for the recovery of infectious viruses. Co-expression analyses with the HA-tagged E1 wt/E1 mutants and E2 wt/E2 mutants demonstrated that C123 in E1 and C295 in E2 are the critical sites for E1/E2 heterodimer formation. Introduction of mutations preventing E1/E2 heterodimer formation into the full-length infectious clone of BVDV CP7 prevented the recovery of infectious viruses, proving that C123 in E1 and C295 in E2 play an essential role in the BVDV life cycle, and further support the conclusion that heterodimer formation is the crucial step. Interestingly, we found that the retention signal of E1 is mandatory for intracellular localization of the heterodimer, so that absence of the E1 retention signal directs the heterodimer to the cell surface even though the E2 retention signal is still present. The covalent linkage between E1 and E2 plays an essential role for this process.