Mechanism of inhibition of late budding caused by ISG15 expression in cells. (Step 1) The ESCRT-III protein, CHMP5, binds to LIP5 in the cytosol. However, in the presence of ISG15-specific E1, E2, and E3 enzymes, ISG15 conjugates to CHMP5 and the binding to LIP5 is lost. (Step 2) The CHMP5-ISG15 conjugate accumulates in the budding complex on the membrane without LIP5. The interaction on the membrane between VPS4 and its coactivator LIP5 is thereby blocked, preventing activation of the ATPase through formation of the VPS4/LIP5 double-hexamer structure. (Step 3) CHMP2A is ISGylated in the presence of ISG15-CHMP5. This results in the loss of its binding to LIP5 and the weakening of its direct interaction to VPS4. (Step 4) CHMP6 is ISGylated in the presence of ISG15-CHMP5. This results in weakening of its binding to VPS4. (Step 5) VPS4 is released into the cytosol, and virus budding is arrested.