Poxvirus genomes consist of a linear duplex DNA that ends in short inverted and complementary hairpin structures. These elements also encode loops and mismatches that likely serve a role in genome packaging and perhaps replication. We constructed mutant vaccinia viruses (VACV) where the native hairpins were replaced by altered forms and tested effects on replication, assembly, and virulence. Our studies showed that structure, not sequence, likely determines function as one can replace an Orthopoxvirus (VACV) hairpin with one copied from a Leporipoxvirus with no effect on growth. Some loops can be deleted from VACV hairpins with little effect, but VACV bearing too few mismatches grew poorly and we couldn’t recover viruses lacking all mismatches. Further studies were conducted using a mutant bearing only one of six mismatches found in wild-type hairpins (SΔ1Δ3–6). This virus grew to ~20-fold lower titers, but neither DNA synthesis nor telomere resolution was affected. However, the mutant exhibited a particle-to-PFU ratio 10-20-fold higher than wild-type viruses and p4b/4b core protein processing was compromised, indicating an assembly defect. Electron microscopy showed that SΔ1Δ3–6 mutant development was blocked at the immature virus (IV) stage, which phenocopies known effects of I1L mutants. Competitive DNA binding assays showed that recombinant I1 protein had less affinity for the SΔ1Δ3–6 hairpin than the wild-type hairpin. The SΔ1Δ3–6 mutant was also attenuated when administered to SCID-NCR mice by tail scarification. Mice inoculated with viruses bearing wild-type hairpins exhibited a median survival of 30–37 days, while mice infected with SΔ1Δ3–6 virus survived >70 days. Persistent infections favor genetic reversion and genome sequencing detected one example where a small duplication near the hairpin tip likely created a new loop. These observations show that mismatches serve a critical role in genome packaging and provide new insights into how VACV “flip and flop” telomeres are arranged.