Interferon-induced transmembrane proteins (IFITMs 1, 2 and 3) have emerged as important innate immune effectors that prevent diverse virus infections in vertebrates. However, the cellular mechanisms and live-cell imaging of these small membrane proteins have been challenging to evaluate during viral entry of mammalian cells. Using CRISPR-Cas9-mediated IFITM-mutant cell lines, we demonstrate that human IFITM1, IFITM2 and IFITM3 act cooperatively and function in a dose-dependent fashion in interferon-stimulated cells. Through site-specific fluorophore tagging and live-cell imaging studies, we show that IFITM3 is on endocytic vesicles that fuse with incoming virus particles and enhances the trafficking of this pathogenic cargo to lysosomes. IFITM3 trafficking is specific to restricted viruses, requires S-palmitoylation and is abrogated with loss-of-function mutants. The site-specific protein labeling and live-cell imaging approaches described here should facilitate the functional analysis of host factors involved in pathogen restriction as well as their mechanisms of regulation.