Tetherin (BST-2/CD317) is thought to restrict retroviral particle release by cross-linking nascent viral and cellular membranes. Unlike the Vpu proteins encoded by human immunodeficiency virus type 1 (HIV-1) group M strains (M-Vpu), those from the nonpandemic HIV-1 group O (O-Vpu) are not able to counteract tetherin activity. Here, we characterized the basis of this defect in O-Vpu. O-Vpu differs from M-Vpu in that it fails to interact with tetherin and downregulate it from the cell surface. Unlike M-Vpu, O-Vpu localizes to the endoplasmic reticulum (ER) rather than the trans-Golgi network (TGN). Interestingly M-Vpu bearing an ER retention signal at the C terminus localizes similarly to O-Vpu. While it still interacts with tetherin, it fails to promote virus release, suggesting that O-Vpu deficiency correlates with its cellular distribution in the endoplasmic reticulum as well as its failure to bind tetherin. O-Vpu-M-Vpu chimeras were designed to identify the minimal changes required to restore tetherin antagonism. While several chimeric proteins bearing residues of the M-Vpu transmembrane domain into the O-Vpu transmembrane domain recovered tetherin binding in coimmunoprecipitation studies, efficient antagonism required an additional glutamic acid-to-lysine change in the membrane-proximal hinge region of the O-Vpu cytoplasmic tail that was sufficient to abolish ER retention and permit TGN localization.