Flaviviruses transmitted by arthropods represent a tremendous disease burden for humans, causing millions of infections annually. All vector-borne flaviviruses studied to date suppress host innate responses to infection by inhibiting alpha/beta interferon (IFN-alpha/beta)-mediated JAK-STAT signal transduction. The viral nonstructural protein NS5 of some flaviviruses functions as the major IFN antagonist, associated with inhibition of IFN-dependent STAT1 phosphorylation (pY-STAT1) or with STAT2 degradation. West Nile virus (WNV) infection prevents pY-STAT1 although a role for WNV NS5 in IFN antagonism has not been fully explored. Here, we report that NS5 from the virulent NY99 strain of WNV prevented pY-STAT1 accumulation, suppressed IFN-dependent gene expression, and rescued the growth of a highly IFN-sensitive virus (Newcastle disease virus) in the presence of IFN, suggesting that this protein can function as an efficient IFN antagonist. In contrast, NS5 from Kunjin virus (KUN), a naturally attenuated subtype of WNV, was a poor suppressor of pY-STAT1. Mutation of a single residue in KUN NS5 to the analogous residue in WNV-NY99 NS5 (S653F) rendered KUN NS5 an efficient inhibitor of pY-STAT1. Incorporation of this mutation into recombinant KUN resulted in 30-fold greater inhibition of JAK-STAT signaling than with the wild-type virus and enhanced KUN replication in the presence of IFN. Thus, a naturally occurring mutation is associated with the function of NS5 in IFN antagonism and may influence virulence of WNV field isolates.