DP178, a synthetic peptide corresponding to a segment of the transmembrane envelope glycoprotein (gp41) of human immunodeficiency virus, type 1 (HIV-1), is a potent inhibitor of viral infection and virus-mediated cell-cell fusion. Nevertheless, DP178 does not contain gp41 coiled-coil cavity binding residues postulated to be essential for inhibiting HIV-1 entry. We find that DP178 inhibits phospholipid redistribution mediated by the HIV-1 envelope glycoprotein at a concentration 8 times greater than that of solute redistribution (the IC(50) values are 43 and 335 nm, respectively). In contrast, C34, a synthetic peptide which overlaps with DP178 but contains the cavity binding residues, did not show this phenomenon (11 and 25 nm, respectively). The ability of DP178 to inhibit membrane fusion at a post-lipid mixing stage correlates with its ability to bind and oligomerize on the surface of membranes. Furthermore, our results are consistent with a model in which DP178 inhibits the formation of gp41 viral hairpin structure at low affinity, whereas C34 inhibits its formation at high affinity: the failure to form the viral hairpin prevents both lipid and solute from redistributing between cells. However, our data also suggest an additional membrane-bound inhibitory site for DP178 in the ectodomain of gp41 within a region immediately adjacent to the membrane-spanning domain. By binding to this higher affinity site, DP178 inhibits the recruitment of several gp41-membrane complexes, thus inhibiting fusion pore formation.