Murine gammaherpesvirus (MHV) 68, a natural pathogen of field mice, is related to human gammaherpesviruses, Epstein-Barr virus (EBV; human herpesvirus 4) and Kaposi's sarcoma-associated herpesvirus (KSHV; human herpesvirus 8). The ORF35 of MHV-68 and its homologues of EBV and KSHV are located in the gene cluster composed of ORF34-ORF38 in which each gene overlaps with adjacent genes. Although MHV-68 ORF35 was reported to be an essential gene, its function during infection is presently unknown. In this study, we show, by analysing ORF35-transfected cells, that three serine residues in the C terminus are responsible for the phosphorylation and that the ORF35 protein forms homo-oligomers via a predicted coiled-coil motif. The ORF35 protein expressed by transfection was preferentially located in the cytoplasm of cells uninfected or infected with MHV-68. The recombinant virus lacking ORF35 (35S virus) exhibited genome replication and expression of lytic proteins comparable to those of the WT virus, but reduced levels of virus production, suggesting that the ORF35 protein acts at the virion assembly and/or egress step. Lytic replication in the lung after intranasal infection and the frequency of ex vivo reactivation from latency after intraperitoneal infection were lower in 35S virus-infected mice than in mice infected with the WT or marker-reverted virus. Our results indicate that ORF35 is not essential for MHV-68 lytic replication, but plays an important role in efficient viral replication and reactivation from latency.