In 2012, an avian influenza A H7N3 (A/Mexico/InDRE7218/2012; Mx/7218) virus was responsible for two confirmed cases of human infection and led to the death or culling of more than 22 million chickens in Jalisco, Mexico. Interestingly, this virus acquired an 8-amino acid (aa)-insertion (..PENPK-DRKSRHRR-TR/GLF) near the hemagglutinin (HA) cleavage site by nonhomologous recombination with host rRNA. It remains unclear which specific residues at the cleavage site contribute to the virulence of H7N3 viruses in mammals. Using loss-of-function approaches, we generated a series of cleavage site mutant viruses by reverse genetics and characterized the viruses in vitro and in vivo. We found that the 8-aa insertion and the arginine at position P4 of the Mx/7218 HA cleavage site are essential for intracellular HA cleavage in 293T cells, but have no effect on the pH of membrane fusion. However, we identified a role for the histidine residue at P5 position in viral fusion pH. In mice, the 8-aa insertion is required for Mx/7218 virus virulence; however, the basic residues upstream of the P4 position are dispensable for virulence. Overall, our study provides the first line of evidence that the insertion in the Mx/7218 virus HA cleavage site confers its intracellular cleavability, and consequently contributes to enhanced virulence in mice.