Although the proteasome facilitates transcription from several yeast promoters, it is unclear if its role is proteolytic or which subunits are involved. We show that the proteasome regulates the HIV-1 promoter in both proteolytic and nonproteolytic modes. In the absence of transcription factor, Tat, proteasome was associated with promoter and coding regions, and its proteolytic activity regulated the level of basal transcription emanating from the promoter. Tat switched the proteasome to a nonproteolytic mode by recruiting a proteasome-associated protein, PAAF1, which favors proteasome dissociation into 19S and 20S particles. Gel filtration chromatography showed that expression of both Tat and PAAF1 enhanced the abundance of a 19S-like complex in nuclear extracts. 19S, but not 20S, subunits were strongly recruited to the promoter in the presence of Tat and PAAF1 and coactivated Tat-dependent transcription. 19S components facilitated transcriptional elongation and may be involved in clearance of paused transcriptional elongation complexes from the promoter.