A mutant human immunodeficiency virus (HIV-1) provirus encoding an envelope (Env) protein with a truncated transmembrane protein cytoplasmic domain was defective for replication. Coexpression of the mutant with a wild-type (wt) HIV-1 provirus potently inhibited the production of infectious virus. The maximum inhibitory effect was reached when the ratio of mutant to wt proviral DNA was 2:1. This transdominant defect in infectivity conferred by the mutant Env did not appear to involve the late steps of virus replication, since the synthesis, precursor processing, and intracellular transport of the Env proteins were not blocked; nor did it prevent the incorporation of the envelope proteins into virions or the subsequent release of the virus. Although the mutant Env protein still retained syncytia-forming ability, the truncated protein was unable to mediate cell-to-cell transmission of the virus. Moreover, coexpression with the mutant effectively inhibited the ability of the wt Env to mediate cell-to-cell transmission. The mutant Env protein formed a complex with the wt protein when they were coexpressed, producing heterooligomeric structures which appeared to be severely defective in an early, post-CD4 binding step of the virus life cycle despite the inclusion of wt Env in the complexes.