The HIV-1 trans-activator Tat increases levels of viral gene expression and replication. The target for Tat is an RNA stem-loop called TAR, located at the 5' end of all viral transcripts. To study the mechanism of action and map functional domains of Tat, we fused Tat to the coat protein of bacteriophage MS2, an RNA binding protein. TAR in the HIV-1 LTR was replaced by the operator, the RNA target of the coat protein. The hybrid Tat-coat protein trans-activated HIV-1 LTRs containing either TAR or operator sequences. Mutations in the operator that weaken binding of the coat protein in vitro led to decreased levels of trans-activation in vivo. Deletions in Tat within the hybrid Tat-coat protein identified activation and RNA binding domains of Tat. These experiments suggest that trans-activation by Tat can occur independently of TAR RNA and DNA binding proteins and that Tat exerts its effects on HIV-1 transcription by directly interacting with the TAR RNA stem-loop.