The Tat protein of human immunodeficiency virus type 1 (HIV-1) plays a key role as inducer of viral gene expression. We report that Tat function can be potently inhibited in human microglial cells by the recently described nuclear receptor cofactor chicken ovalbumin upstream promoter transcription factor-interacting protein 2 (CTIP2). Overexpression of CTIP2 leads to repression of HIV-1 replication, as a result of inhibition of Tat-mediated transactivation. In contrast, the related CTIP1 was unable to affect Tat function and viral replication. Using confocal microscopy to visualize Tat subcellular distribution in the presence of the CTIPs, we found that overexpression of CTIP2, and not of CTIP1, leads to disruption of Tat nuclear localization and recruitment of Tat within CTIP2-induced nuclear ball-like structures. In addition, our studies demonstrate that CTIP2 colocalizes and associates with the heterochromatin-associated protein HP1alpha. The CTIP2 protein harbors two Tat and HP1 interaction interfaces, the 145-434 and the 717-813 domains. CTIP2 and HP1alpha associate with Tat to form a three-protein complex in which the 145-434 CTIP2 domain interacts with the N-terminal region of Tat, while the 717-813 domain binds to HP1. The importance of this Tat binding interface and of Tat subnuclear relocation was confirmed by analysis of CTIP2 deletion mutants. Our findings suggest that inhibition of HIV-1 expression by CTIP2 correlates with recruitment of Tat within CTIP2-induced structures and relocalization within inactive regions of the chromatin via formation of the Tat-CTIP2-HP1alpha complex. These data highlight a new mechanism of Tat inactivation through subnuclear relocalization that may ultimately lead to inhibition of viral pathogenesis.