The Rex protein is an essential regulator of RNA expression in human T-cell leukemia virus types 1 and 2 (HTLV-1 and HTLV-2) that promotes the accumulation of full-length and partially spliced viral transcripts in the cytoplasm. Rex-mediated regulation correlates with specific binding to a cognate RNA recognition element which overlaps the 5' splice site in the viral long terminal repeat. It has been unclear whether Rex directly affects splicing or only nuclear-to-cytoplasmic transport of viral mRNA. We demonstrate that HTLV-2 Rex is a potent inhibitor of splicing in vitro at an early step in spliceosome assembly. Inhibition requires phosphorylation of Rex and the ability of Rex to bind to the Rex response element. Direct inhibition of early spliceosome assembly by Rex may account for differential accumulation of unspliced transcripts and represents a novel mechanism of retroviral gene regulation.