The multifunctional nucleocapsid (N) protein in SARS-CoV-2 binds the ~30 kb viral RNA genome to aid its packaging into the 80–90 nm membrane-enveloped virion. The N protein is composed of N-terminal RNA-binding and C-terminal dimerization domains that are flanked by three intrinsically disordered regions. Here we demonstrate that the N protein’s central disordered domain drives phase separation with RNA, and that phosphorylation of an adjacent serine/arginine rich region modulates the physical properties of the resulting condensates. In cells, N forms condensates that recruit the stress granule protein G3BP1, highlighting a potential role for N in G3BP1 sequestration and stress granule inhibition. The SARS-CoV-2 membrane (M) protein independently induces N protein phase separation, and three-component mixtures of N + M + RNA form condensates with mutually exclusive compartments containing N + M or N + RNA, including annular structures in which the M protein coats the outside of an N + RNA condensate. These findings support a model in which phase separation of the SARS-CoV-2 N protein contributes both to suppression of the G3BP1-dependent host immune response and to packaging genomic RNA during virion assembly.