Expression of a retroviral protein, Gag, in mammalian cells is sufficient for assembly of immature virus-like particles (VLPs). VLP assembly is mediated largely by interactions between the capsid (CA) domains of Gag molecules but is facilitated by binding of the nucleocapsid (NC) domain to nucleic acid. We have investigated the role of SP1, a spacer between CA and NC in HIV-1 Gag, in VLP assembly. Mutational analysis showed that even subtle changes in the first 4 residues of SP1 destroy the ability of Gag to assemble correctly, frequently leading to formation of tubes or other misassembled structures rather than proper VLPs. We also studied the conformation of the CA-SP1 junction region in solution, using both molecular dynamics simulations and circular dichroism. Consonant with nuclear magnetic resonance (NMR) studies from other laboratories, we found that SP1 is nearly unstructured in aqueous solution but undergoes a concerted change to an α-helical conformation when the polarity of the environment is reduced by addition of dimethyl sulfoxide (DMSO), trifluoroethanol, or ethanol. Remarkably, such a coil-to-helix transition is also recapitulated in an aqueous medium at high peptide concentrations. The exquisite sensitivity of SP1 to mutational changes and its ability to undergo a concentration-dependent structural transition raise the possibility that SP1 could act as a molecular switch to prime HIV-1 Gag for VLP assembly. We suggest that changes in the local environment of SP1 when Gag oligomerizes on nucleic acid might trigger this switch.