We demonstrated previously that PP2A exists in many cell types as two abundant forms: (1) holoenzyme composed of two regulatory subunits, A and B, and a catalytic subunit C; and (2) core enzyme consisting of the A and C subunits. These two forms have different substrate specificities. Since published data suggested that HIV-1 transcription may be regulated by a cellular protein phosphatase, it was of interest to determine whether changing the ratio between PP2A core and holoenzyme affects HIV-1 gene expression. This question was addressed by expression in COS cells of an N-terminal mutant of the A subunit, A delta 5, which binds the C but not the B subunit. This resulted in an increase in the amount of core enzyme and a decrease in the amount of holoenzyme concomitant with the expected change in phosphatase activity. Tat-stimulated transcription from the HIV-1 LTR was inhibited 5-fold by mutant A delta 5, whereas mRNA synthesis directed by the actin promoter was not affected. Furthermore, virus production in COS, HeLa, and Jurkat T cells was inhibited 45-, 5-, and 3-fold, respectively, by mutant A delta 5. These results demonstrate that the balance between PP2A holoenzyme and core enzyme is important for HIV-1 gene expression and virus production.