Viral proteins are known to be methylated by host protein arginine methyltransferases (PRMTs) necessary for the viral life cycle, but it remains unknown whether severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) proteins are methylated. Herein, we show that PRMT1 methylates SARS-CoV-2 nucleocapsid (N) protein at residues R95 and R177 within RGG/RG motifs, preferred PRMT target sequences. We confirmed arginine methylation of N protein by immunoblotting viral proteins extracted from SARS-CoV-2 virions isolated from cell culture. Type I PRMT inhibitor (MS023) or substitution of R95 or R177 with lysine inhibited interaction of N protein with the 5'-UTR of SARS-CoV-2 genomic RNA, a property required for viral packaging. We also defined the N protein interactome in HEK293 cells, which identified PRMT1 and many of its RGG/RG substrates, including the known interacting protein G3BP1 as well as other components of stress granules (SGs), which are part of the host antiviral response. Methylation of R95 regulated the ability of N protein to suppress the formation of SGs, as R95K substitution or MS023 treatment blocked N-mediated suppression of SGs. Also, the coexpression of methylarginine reader Tudor domain-containing protein 3 quenched N protein-mediated suppression of SGs in a dose-dependent manner. Finally, pretreatment of VeroE6 cells with MS023 significantly reduced SARS-CoV-2 replication. Because type I PRMT inhibitors are already undergoing clinical trials for cancer treatment, inhibiting arginine methylation to target the later stages of the viral life cycle such as viral genome packaging and assembly of virions may represent an additional therapeutic application of these drugs.