The Nef protein of HIV-1 is essential for its pathogenicity and is known to down-regulate MHC expression on infected cell surfaces. We now show that Nef also redistributes the costimulatory molecules CD80 and CD86 away from the cell surface in the human monocytic U937 cell line as well as in mouse macrophages and dendritic cells. Furthermore, HIV-1-infected U937 cells and human blood-derived macrophages show a similar loss of cell surface CD80 and CD86. Nef colocalizes with MHC class I (MHCI), CD80, and CD86 in intracellular compartments, and binds to both mouse and human CD80 and CD86. Some Nef mutants defective in MHCI down-modulation, including one from a clinical isolate, remain capable of down-modulating CD80 and CD86. Nef-mediated loss of surface CD80/CD86 is functionally significant, because it leads to compromised activation of naive T cells. This novel immunomodulatory role of Nef may be of potential importance in explaining the correlations of macrophage-tropism and Nef with HIV-1 pathogenicity and immune evasion.