CP32M is a newly designed peptide fusion inhibitor possessing potent anti-HIV activity, especially against T20-resistant HIV-1 strains. In this study, we show that CP32M can efficiently inhibit a large panel of diverse HIV-1 variants, including subtype B', CRF07_BC, and CRF01_AE recombinants and naturally occurring or induced T20-resistant viruses. To elucidate its mechanism of action, we determined the crystal structure of CP32M complexed with its target sequence. Differing from its parental peptide, CP621-652, the (621)VEWNEMT(627) motif of CP32M folds into two α-helix turns at the N terminus of the pocket-binding domain, forming a novel layer in the six-helix bundle structure. Prominently, the residue Asn-624 of the (621)VEWNEMT(627) motif is engaged in the polar interaction with a hydrophilic ridge that borders the hydrophobic pocket on the N-terminal coiled coil. The original inhibitor design of CP32M provides several intra- and salt bridge/hydrogen bond interactions favoring the stability of the helical conformation of CP32M and its interactions with N-terminal heptad repeat (NHR) targets. We identified a novel salt bridge between Arg-557 on the NHR and Glu-648 of CP32M that is critical for the binding of CP32M and resistance against the inhibitor. Therefore, our data present important information for developing novel HIV-1 fusion inhibitors for clinical use.