Liquid-liquid phase separation (LLPS) has assumed a prominent role in biological cell systems, where it underpins the formation of subcellular compartments necessary for cell function. We investigated the underlying mechanism of LLPS in virus infected cells, where virus inclusion bodies are formed by an RNA-binding phosphoprotein (NS2) of Bluetongue virus to serve as sites for subviral particle assembly and virus maturation. We show that NS2 undergoes LLPS that is dependent on protein phosphorylation and RNA-binding and that LLPS occurrence is accompanied by a change in protein secondary structure. Site-directed mutagenesis identified two critical arginine residues in NS2 responsible for specific RNA binding and thus for NS2-RNA complex driven LLPS. Reverse genetics identified the same residues as essential for VIB assembly in infected cells and virus viability. Our findings suggest that a specific arginine-RNA interaction in the context of a phosphorylated state drives LLPS in this, and possibly other, virus infections.