HIV-1 infection triggers lateral membrane diffusion following interaction of the viral envelope with cell surface receptors. We show that these membrane changes are necessary for infection, as initial gp120-CD4 engagement leads to redistribution and clustering of membrane microdomains, enabling subsequent interaction of this complex with HIV-1 co-receptors. Disruption of cell membrane rafts by cholesterol depletion before viral exposure inhibits entry by both X4 and R5 strains of HIV-1, although viral replication in infected cells is unaffected by this treatment. This inhibitory effect is fully reversed by cholesterol replenishment of the cell membrane. These results indicate a general mechanism for HIV-1 envelope glycoprotein-mediated fusion by reorganization of membrane microdomains in the target cell, and offer new strategies for preventing HIV-1 infection.