Background: Foamy viruses (FVs) of the Spumaretrovirinae subfamily are distinct retroviruses, with many features of their molecular biology and replication strategy clearly different from those of the Orthoretroviruses, such as human immunodeficiency, murine leukemia, and human T cell lymphotropic viruses. The FV Gag N-terminal region is responsible for capsid formation and particle budding via interaction with Env. However, the critical residues or motifs in this region and their functional interaction are currently ill-defined, especially in non-primate FVs. Results: Mutagenesis of N-terminal Gag residues of feline FV (FFV) reveals key residues essential for either capsid assembly and/or viral budding via interaction with the FFV Env leader protein (Elp). In an in vitro Gag-Elp interaction screen, Gag mutations abolishing particle assembly also interfered with Elp binding, indicating that Gag assembly is a prerequisite for this highly specific interaction. Gradient sedimentation analyses of cytosolic proteins indicate that wild-type Gag is mostly assembled into virus capsids. Moreover, proteolytic processing of Gag correlates with capsid assembly and is mostly, if not completely, independent from particle budding. In addition, Gag processing correlates with the presence of packaging-competent FFV genomic RNA suggesting that Pol encapsidation via genomic RNA is a prerequisite for Gag processing. Though an appended heterogeneous myristoylation signal rescues Gag particle budding of mutants unable to form capsids or defective in interacting with Elp, it fails to generate infectious particles that co-package Pol, as evidenced by a lack of Gag processing. Conclusions: Changes in proteolytic Gag processing, intracellular capsid assembly, particle budding and infectivity of defined N-terminal Gag mutants highlight their essential, distinct and only partially overlapping roles during viral assembly and budding. Discussion of these findings will be based on a recent model developed for Gag-Elp interactions in prototype FV.