The trans-activator gene (tat-III) of the human T lymphotropic virus type III (HTLV-III/LAV) is shown to regulate positively the expression of viral proteins. Viruses in which the tat-III gene is deleted are incapable of prolific replication and do not demonstrate cytopathic effects in T4+ cell lines. These defects can be fully complemented in cell lines that constitutively express the tat-III gene product. We conclude that the tat-III gene product is required for efficient replication of HTLV-III in T4+ cells, and for that reason is important for the cytopathic effects of virus infection. These observations predict that inhibitors of the tat-III gene product may constitute effective therapeutic agents.