The interferon-inducible transmembrane (IFITM) proteins inhibit a wide range of viruses. We previously reported the inhibition of human immunodeficiency virus type 1 (HIV-1) strain BH10 by human IFITM1, 2 and 3. It is unknown whether other HIV-1 strains are similarly inhibited by IFITMs and whether there exists viral countermeasure to overcome IFITM inhibition. We report here that the HIV-1 NL4-3 strain (HIV-1NL4-3) is not restricted by IFITM1 and its viral envelope glycoprotein is partly responsible for this insensitivity. However, HIV-1NL4-3 is profoundly inhibited by an IFITM1 mutant, known as Δ(117-125), which is deleted of 9 amino acids at the C-terminus. In contrast to the wild type IFITM1, which does not affect HIV-1 entry, the Δ(117-125) mutant diminishes HIV-1NL4-3 entry by 3-fold. This inhibition correlates with the predominant localization of Δ(117-125) to the plasma membrane where HIV-1 entry occurs. In spite of strong conservation of IFITM1 among most species, mouse IFITM1 is 19 amino acids shorter at its C-terminus as compared to human IFITM1 and, like the human IFITM1 mutant Δ(117-125), mouse IFITM1 also inhibits HIV-1 entry. This is the first report illustrating the role of viral envelope protein in overcoming IFITM1 restriction. The results also demonstrate the importance of the C-terminal region of IFITM1 in modulating the antiviral function through controlling protein subcellular localization.