Retroviral Gag proteins are targeted to the plasma membrane, where they play the central role in virion formation. Several studies have suggested that the membrane-binding signal is contained within the amino-terminal matrix sequence; however, the precise location has never been determined for the Gag protein of any retrovirus. In this report, we show that the first 31 residues of human immunodeficiency virus type 1 Gag protein can function independently as a membrane-targeting domain when fused to heterologous proteins. A bipartite membrane-targeting motif was identified, consisting of the myristylated N-terminal 14 amino acids and a highly basic region that binds acidic phospholipids. Replacement of the N-terminal membrane-targeting domain of pp60v-src with that of human immunodeficiency virus type 1 Gag elicits efficient membrane binding and a transforming phenotype. Removal of myristate or the basic region results in decreased membrane binding of Gag-Src chimeras in vitro and impaired virion formation by Pr55gag in vivo. We propose that the N-terminal Gag sequence functions as a targeting signal to direct interaction with acidic phospholipids on the cytoplasmic leaflet of the plasma membrane.