Budding of retroviruses from cell membranes requires ubiquitination of Gag and recruitment of cellular proteins involved in endosome sorting, including endosome sorting complex required for transport III (ESCRT-III) protein complex and vacuolar protein sorting 4 (VPS4) and its ATPase. In response to infection, a cellular mechanism has evolved that blocks virus replication early and late in the budding process through expression of interferon-stimulated gene 15 (ISG15), a dimer homologue of ubiquitin. Interferon treatment of DF-1 cells blocks avian sarcoma/leukosis virus release, demonstrating that this mechanism is functional under physiological conditions. The late block to release is caused in part by a loss in interaction between VPS4 and its coactivator protein LIP5, which is required to promote the formation of the ESCRT III-VPS4 doublehexamer complex to activate its ATPase. ISG15 is conjugated to two different LIP5-ESCRT-III-binding charged multivesicular body proteins, CHMP2A and CHMP5. Upon ISGylation of each, interaction with LIP5 is no longer detected. Two other ESCRT-III proteins, CHMP4B and CHMP6, are also conjugated to ISG15. ISGylation of CHMP2A, CHMP4B, and CHMP6 weakens their binding directly to VPS4, thereby facilitating the release of this protein from the membrane into the cytosol. The remaining budding complex fails to release particles from the cell membrane. Introducing a mutant of ISG15 into cells that cannot be conjugated to proteins prevents the ISG15-dependent mechanism from blocking virus release. CHMP5 is the primary switch to initiate the antiviral mechanism, because removal of CHMP5 from cells prevents ISGylation of CHMP2A and CHMP6.