The bluetongue virus (BTV) core protein VP3 plays a crucial role in the virion assembly and replication process. Although the structure of the protein is well characterized, much less is known about the intracellular processing and localization of the protein in the infected host cell. In BTV-infected cells, newly synthesized viral core particles accumulate in specific locations within the host cell in structures known as virus inclusion bodies (VIBs), which are composed predominantly of the nonstructural protein NS2. However, core protein location in the absence of VIBs remains unclear. In this study, we examined VP3 location and degradation both in the absence of any other viral protein and in the presence of NS2 or the VP3 natural associate protein, VP7. To enable real-time tracking and processing of VP3 within the host cell, a fully functional enhanced green fluorescent protein (EGFP)-VP3 chimera was synthesized, and distribution of the fusion protein was monitored in different cell types using specific markers and inhibitors. In the absence of other BTV proteins, EGFP-VP3 exhibited distinct cytoplasmic focus formation. Further evidence suggested that EGFP-VP3 was targeted to the proteasome of the host cells but was dispersed throughout the cytoplasm when MG132, a specific proteasome inhibitor, was added. However, the distribution of the chimeric EGFP-VP3 protein was altered dramatically when the protein was expressed in the presence of the BTV core protein VP7, a normal partner of VP3 during BTV assembly. Interaction of EGFP-VP3 and VP7 and subsequent assembly of core-like particles was further examined by visualizing fluorescent particles and was confirmed by biochemical analysis and by electron microscopy. These data indicated the correct assembly of EGFP-VP3 subcores, suggesting that core formation could be monitored in real time. When EGFP-VP3 was expressed in BTV-infected BSR cells, the protein was not associated with proteasomes but instead was distributed within the BTV inclusion bodies, where it colocalized with NS2. These findings expand our knowledge about VP3 localization and its fate within the host cell and illustrate the assembly capability of a VP3 molecule with a large amino-terminal extension. This also opens up the possibility of application as a delivery system.