Membrane cholesterol plays an important role in human immunodeficiency virus type 1 (HIV-1) particle production and infectivity. Here, we have investigated the target and mechanism of action of a cholesterol-binding compound, the polyene antifungal antibiotic amphotericin B methyl ester (AME). We found that AME potently inhibited the replication of a highly divergent panel of HIV-1 isolates in various T-cell lines and primary cells irrespective of clade or target cell tropism. The defects in HIV-1 replication caused by AME were due to profoundly impaired viral infectivity as well as a defect in viral particle production. To elucidate further the mechanism of action of AME, we selected for and characterized AME-resistant HIV-1 variants. Mutations responsible for AME resistance mapped to a highly conserved and functionally important endocytosis motif in the cytoplasmic tail of the transmembrane glycoprotein gp41. Interestingly, truncation of the gp41 cytoplasmic tail in the context of either HIV-1 or rhesus macaque simian immunodeficiency virus also conferred resistance to AME. The infectivity of HIV-1 virions bearing murine leukemia virus or vesicular stomatitis virus glycoproteins was unaffected by AME. Our data define the target and mechanism of action of AME and provide support for the concept that cholesterol-binding compounds should be pursued as antiretroviral drugs to disrupt HIV-1 replication.