© 2018 Watanabe et al. The Gag protein of avian sarcoma virus (ASV) lacks an N-myristoyl (myr) group, but contains structural domains similar to those of HIV-1 Gag. Similarly to HIV-1, ASV Gag accumulates on the plasma membrane (PM) before egress; however, it is unclear whether the phospholipid PI(4,5)P 2 binds directly to the matrix (MA) domain of ASV Gag, as is the case for HIV-1 Gag. Moreover, the role of PI(4,5)P 2 in ASV Gag localization and budding has been controversial. Here, we report that substitution of residues that define the PI(4,5)P 2 -binding site in the ASV MA domain (reported in an accompanying paper) interfere with Gag localization to the cell periphery and inhibit the production of virus-like particles (VLPs). We show that co-expression of Sprouty2 (Spry2) or the pleckstrin homology domain of phospholipase C (PH-PLC), two proteins that bind PI(4,5)P 2 , affects ASV Gag trafficking to the PM and budding. Replacement of the N-terminal 32 residues of HIV-1 MA, which encode its N-terminal myr signal and its PI(4,5)P 2 -binding site, with the structurally equivalent N-terminal 24 residues of ASV MA created a chimera that localized at the PM and produced VLPs. In contrast, the homologous PI(4,5)P 2 -binding signal in ASV MA could target HIV-1 Gag to the PM when substituted, but did not support budding. Collectively, these findings reveal a basic patch in both ASV and HIV-1 Gag capable of mediating PM binding and budding for ASV but not for HIV-1 Gag. We conclude that PI(4,5)P 2 is a strong determinant of ASV Gag targeting to the PM and budding.