In infected people, the HIV-1 envelope glycoprotein (Env) constantly evolves to escape the immune response while retaining the essential elements needed to mediate viral entry into target cells. The extensive genetic variation of Env is particularly striking in the V1/V2 hypervariable domains. In this study, we investigated the trade-off, in terms of fusion efficiency, for encoding V1/V2 domains of different lengths. We found that natural variations in V1/V2 length exert a profound impact on HIV-1 entry. Variants encoding compact V1/V2 domains mediated fusion with higher efficiencies than related Envs encoding longer V1/V2 domains. By exchanging the V1/V2 domains between Envs of the same infected person or between two persons linked by a transmission event, we further demonstrated that V1/V2 domains critically influence both Env incorporation into viral particles and fusion to primary CD4 T cells and monocyte-derived dendritic cells. Shortening the V1/V2 domains consistently increased Env incorporation and fusion, whereas lengthening the V1/V2 domains decreased Env incorporation and fusion. Given that in a new host transmitted founder viruses are distinguished by compact Envs with fewer glycosylation sites, our study points to fusion and possibly Env incorporation into virions as limiting steps for transmission of HIV-1 to a new host and suggests that the length and/or the N-glycosylation profile of the V1/V2 domain influences these early steps in the HIV life cycle.