We performed live cell visualization assays to directly assess the interaction between competing adeno-associated virus (AAV) and herpes simplex virus type 1 (HSV-1) DNA replication. Our studies reveal the formation of separate AAV and HSV-1 replication compartments and the inhibition of HSV-1 replication compartment formation in the presence of AAV. AAV Rep is recruited into AAV replication compartments but not into those of HSV-1, while the single-stranded DNA-binding protein HSV-1 ICP8 is recruited into both AAV and HSV-1 replication compartments, although with differential staining patterns. Slot blot analysis of coinfected cells revealed a dose-dependent inhibition of HSV-1 DNA replication by wild-type AAV but not by rep-negative recombinant AAV. Consistent with this, Western blot analysis indicated that wild-type AAV affects the levels of the HSV-1 immediate-early protein ICP4 and the early protein ICP8 only modestly but strongly inhibits the accumulation of the late proteins VP16 and gC. Furthermore, we demonstrate that the presence of Rep in the absence of AAV DNA replication is sufficient for the inhibition of HSV-1. In particular, Rep68/78 proteins severely inhibit the formation of mature HSV-1 replication compartments and lead to the accumulation of ICP8 at sites of cellular DNA synthesis, a phenomenon previously observed in the presence of viral polymerase inhibitors. Taken together, our results suggest that AAV and HSV-1 replicate in separate compartments and that AAV Rep inhibits HSV-1 at the level of DNA replication.