Retrovirus particles are not infectious until they undergo proteolytic maturation to form a functional core. Here we report a link between human immunodeficiency virus type 1 (HIV-1) core maturation and the ability of the virus to fuse with target cells. Using a recently developed reporter assay of HIV-1 virus-cell fusion, we show that immature HIV-1 particles are 5- to 10-fold less active for fusion with target cells than are mature virions. The fusion of mature and immature virions was rendered equivalent by truncating the gp41 cytoplasmic domain or by pseudotyping viruses with the glycoprotein of vesicular stomatitis virus. An analysis of a panel of mutants containing mutated cleavage sites indicated that HIV-1 fusion competence is activated by the cleavage of Gag at any site between the MA and NC segments and not as an indirect consequence of an altered core structure. These results suggest a mechanism by which binding of the gp41 cytoplasmic tail to Gag within immature HIV-1 particles inhibits Env conformational changes on the surface of the virion that are required for membrane fusion. This “inside-out” regulation of HIV-1 fusion could play an important role in the virus life cycle by preventing the entry of immature, noninfectious particles.