The outer capsid layer of Bluetongue virus, a member of the nonenveloped Reoviridae family, is composed of two proteins, a receptor-binding protein, VP2, and a second protein, VP5, which shares structural features with class I fusion proteins of enveloped viruses. In the replication cycle of Bluetongue virus VP5 acts as a membrane permeabilization protein that mediates release of viral particles from endosomal compartments into the cytoplasm. Here, we show that VP5 can also act as a fusion protein and induce syncytium formation when it is fused to a transmembrane anchor and expressed on the cell surface. Fusion activity is strictly pH-dependent and is triggered by short exposure to low pH. No cell-cell fusion is observed at neutral pH. Deletion of the first 40 amino acids, which can fold into two amphipathic helices, abolishes fusion activity. Syncytium formation by VP5 is inhibited in the presence of VP2 when it is expressed in a membrane-anchored form. The data indicate an interaction between the outer capsid protein VP2 and VP5 and show that VP5 undergoes pH-dependent conformational changes that render it capable of interacting with cellular membranes. More importantly, our data show that a membrane permeabilization protein of a nonenveloped virus can evolve into a fusion protein by the addition of an appropriate transmembrane anchor. The results strongly suggest that the mechanism of membrane permeabilization by VP5 and membrane fusion by viral fusion proteins require similar structural features and conformational changes.