Host cell entry of vaccinia virus, the prototypic poxvirus, involves a membrane fusion event delivering the viral core and two proteinaceous lateral bodies (LBs) into the cytosol. Uncoating of viral cores is poorly characterized, and the composition and function of LBs remains enigmatic. We found that cytosolic cores rapidly dissociated from LBs and expanded in volume, which coincided with reduction of disulfide-bonded core proteins. We identified the abundant phosphoprotein F17, the dual-specificity phosphatase VH1, and the oxidoreductase G4 as bona fide LB components. After reaching the cytosol, F17 was degraded in a proteasome-dependent manner. Proteasome activity, and presumably LB disassembly, was required for the immediate immunomodulatory activity of VH1: dephosphorylation of STAT1 to prevent interferon-γ-mediated antiviral responses. These results reveal a mechanism used by poxviruses to deliver viral enzymes to the host cell cytosol and are likely to facilitate the identification of additional LB-resident viral effectors.