The envelope proteins of retroviruses are derived from a polypeptide precursor protein by cleavage adjacent to a cluster of basic amino acids. Site-specific mutagenesis was used to construct a mutant of the human immunodeficiency virus type 1 (HIV-1) in which the arginine residue at the carboxy-terminus of the gp120 was changed to a threonine residue. This single substitution was sufficient to abolish all detectable cleavage of the gp160 envelope precursor polypeptide as well as virus infectivity. The gp160 was produced in normal quantities from a biologically active clone of the mutant virus after transfection into cos-1 cells. The mutant gp160 contained N-linked oligosaccharide chains with mannose-rich cores similar to those of the gp160 produced by the wild-type clone. Immunofluorescence assays showed that gp160 was transported to the surface of transfected CD4+ HeLa cells. No envelope proteins of known size could be detected in the media of cells transfected with the mutant virus, suggesting that functional virions were not formed. Binding of the mutant gp160 to the CD4 receptor molecule was unimpaired. Despite this and the presence of gp160 on the cell surface, neither growth of mutant-transfected CD4+ HeLa cells nor cocultivation of transfected cos-1 cells with H9 cells resulted in significant syncytium formation. The data indicate that the carboxy-terminal arginine residue of HIV-1 gp120 is necessary for envelope protein cleavage and suggest cleavage is important in the virus life cycle in both functional virus release and membrane fusion.