IFN alpha causes a modest reduction of HIV-1 expression in chronically infected monocytoid U937 cells. However, the ratio between cell-associated and shed viral p24 antigen is altered, being the cell-associated fraction dose-dependently enhanced by IFN. Furthermore, a significant decrease of infectivity of both cell-associated and shed material is observed. Transmission electron microscopy of IFN-treated cells revealed virus assembly being strongly inhibited, with the production of morphologically altered (tear-drop shaped) virus particles. Proteolytic processing of gag proteins appeared to be normal in IFN-treated cultures. However, virions shed from IFN-treated cells showed a markedly reduced incorporation of virus-specific gp120 and cell-derived ICAM-1 by the virus envelope. Additionally, these particles showed a significantly decreased ability to become bound to CD4+ target cells, accounting for, at least in part, the observed decrease of infectivity. Taken together, the data suggest that, in chronically infected cells, IFN alpha can affect late stages of HIV-1 replication, by inhibiting virus assembly and release, and by reducing the infectivity of shed virions. The latter effect seems to be due, at least in part, to altered incorporation of surface glycoproteins and defective particle formation. The relationship between impaired gp120 incorporation and altered morphogenesis of HIV-1 virions is under investigation.