We have characterized reovirus strains that differ in the degree to which they inhibit cellular protein synthesis and used them to investigate mechanisms regulating gene expression in infected cells. A previous genetic study associated distinct effects of reovirus strains on cellular translation with polymorphisms in viral protein sigma3. In cell extracts, sigma3 sequesters double-stranded RNA (dsRNA) and blocks activation of the dsRNA-activated protein kinase (PKR), an interferon-induced enzyme that inhibits translational initiation by phosphorylating elF-2alpha. We found that in infected cells, cellular protein synthesis is translationally regulated in a strain-specific manner. Using immunoprecipitation and indirect immunofluorescence we showed that the effect of a strain on cellular translation is not determined by the level of sigma3, but appears to result from differences in sigma3 localization. In cells infected with a strain that spares cellular translation, sigma3 is present throughout the cytoplasm, whereas in cells infected with inhibitory strains, sigma3 is restricted to perinuclear viral factories. Biochemical studies suggested that diffuse localization of sigma3 is a consequence of low affinity for capsid protein mu1. Our findings are consistent with a model in which the efficiency of cellular translation is determined by the cytoplasmic level of sigma3 that is not complexed with mu1.