RNA modification plays an important role in modulating host-pathogen interaction. Flavivirus NS5 protein encodes N-7 and 2'-O methyltransferase activities that are required for the formation of 5' type I cap (m(7)GpppAm) of viral RNA genome. Here we reported, for the first time, that flavivirus NS5 has a novel internal RNA methylation activity. Recombinant NS5 proteins of West Nile virus and Dengue virus (serotype 4; DENV-4) specifically methylates polyA, but not polyG, polyC, or polyU, indicating that the methylation occurs at adenosine residue. RNAs with internal adenosines substituted with 2'-O-methyladenosines are not active substrates for internal methylation, whereas RNAs with adenosines substituted with N⁶-methyladenosines can be efficiently methylated, suggesting that the internal methylation occurs at the 2'-OH position of adenosine. Mass spectroscopic analysis further demonstrated that the internal methylation product is 2'-O-methyladenosine. Importantly, genomic RNA purified from DENV virion contains 2'-O-methyladenosine. The 2'-O methylation of internal adenosine does not require specific RNA sequence since recombinant methyltransferase of DENV-4 can efficiently methylate RNAs spanning different regions of viral genome, host ribosomal RNAs, and polyA. Structure-based mutagenesis results indicate that K61-D146-K181-E217 tetrad of DENV-4 methyltransferase forms the active site of internal methylation activity; in addition, distinct residues within the methyl donor (S-adenosyl-L-methionine) pocket, GTP pocket, and RNA-binding site are critical for the internal methylation activity. Functional analysis using flavivirus replicon and genome-length RNAs showed that internal methylation attenuated viral RNA translation and replication. Polymerase assay revealed that internal 2'-O-methyladenosine reduces the efficiency of RNA elongation. Collectively, our results demonstrate that flavivirus NS5 performs 2'-O methylation of internal adenosine of viral RNA in vivo and host ribosomal RNAs in vitro.