HIV-1 reverse transcriptase discriminates poorly between dUTP and dTTP, and accordingly, viral DNA products become heavily uracilated when viruses infect host cells that contain high ratios of dUTP:dTTP. Uracilation of invading retroviral DNA is thought to be an innate immunity barrier to retroviral infection, but the mechanistic features of this immune pathway and the cellular fate of uracilated retroviral DNA products is not known. Here we developed a model system in which the cellular dUTP:dTTP ratio can be pharmacologically increased to favor dUTP incorporation, allowing dissection of this innate immunity pathway. When the virus-infected cells contained elevated dUTP levels, reverse transcription was found to proceed unperturbed, but integration and viral protein expression were largely blocked. Furthermore, successfully integrated proviruses lacked detectable uracil, suggesting that only nonuracilated viral DNA products were integration competent. Integration of the uracilated proviruses was restored using an isogenic cell line that had no detectable human uracil DNA glycosylase (hUNG2) activity, establishing that hUNG2 is a host restriction factor in cells that contain high dUTP. Biochemical studies in primary cells established that this immune pathway is not operative in CD4+ T cells, because these cells have high dUTPase activity (low dUTP), and only modest levels of hUNG activity. Although monocyte-derived macrophages have high dUTP levels, these cells have low hUNG activity, which may diminish the effectiveness of this restriction pathway. These findings establish the essential elements of this pathway and reconcile diverse observations in the literature.