Tat is a critical regulatory factor in HIV-1 gene expression. It mediates the transactivation of transcription from the HIV-1 LTR by binding to the transactivation response (TAR) element in a complex with cyclin T1. Because of its critical and early role in HIV gene expression, Tat and its interaction with the TAR element constitute important therapeutic targets for the treatment of HIV-1 infection. Based on the known nucleolar localization properties of Tat, we constructed a chimeric small nucleolar RNA-TAR decoy that localizes to the nucleoli of human cells and colocalizes in the nucleolus with a Tat-enhanced GFP fusion protein. When the chimeric RNA was stably expressed in human T lymphoblastoid CEM cells it potently inhibited HIV-1 replication. These results demonstrate that the nucleolar trafficking of Tat is critical for HIV-1 replication and suggests a role for the nucleolus in HIV-1 viral replication.