Hemagglutinin (HA) of influenza virus is incorporated into cholesterol-enriched nanodomains of the plasma membrane. Phylogenetic group 2 HAs contain the conserved cholesterol consensus motif (CCM) YKLW in the transmembrane region. We previously reported that mutations in the CCM retarded intracellular transport of HA and decreased its nanodomain association. Here, we analyzed whether cholesterol interacts with the CCM. Incorporation of photocholesterol into HA was significantly reduced if the whole CCM is replaced by alanine, both using immunoprecipitated HA and when HA is embedded in the membrane. We next used reverse genetics to investigate the significance of the CCM for virus replication. No virus was rescued if the whole motif is exchanged (YKLW4A); singly (LA) or doubly (YK2A and LW2A) mutated virus showed decreased titers and a comparative fitness disadvantage. In polarized cells, transport of HA mutants to the apical membrane was not disturbed. Reduced amounts of HA and cholesterol were incorporated into the viral membrane. Mutant viruses exhibit a decrease in hemolysis, which is only partially corrected if the membrane is replenished with cholesterol. More specifically, viruses have a defect in hemifusion, as demonstrated by fluorescence dequenching. Cells expressing HA YKLW4A fuse with erythrocytes, but the number of events is reduced. Even after acidification unfused erythrocytes remain cell bound, a phenomenon not observed with wild-type HA. We conclude that cholesterol binding to a group 2 HA is essential for virus replication. It has pleiotropic effects on virus assembly and membrane fusion, mainly on lipid mixing and possibly a preceding step.IMPORTANCE The glycoprotein HA is a major pathogenicity factor of influenza viruses. Whereas the structure and function of HA's ectodomain is known in great detail, similar data for the membrane-anchoring part of the protein are missing. Here, we demonstrate that the transmembrane region of a group 2 HA interacts with cholesterol, the major lipid of the plasma membrane and the defining element of the viral budding site nanodomains of the plasma membrane. The cholesterol binding motif is essential for virus replication. Its partial removal affects various steps of the viral life cycle, such as assembly of new virus particles and their subsequent cell entry via membrane fusion. A cholesterol binding pocket in group 2 HAs might be a promising target for a small lipophilic drug that inactivates the virus.