Retroviral reverse transcription starts near the 5' end of unspliced viral RNA at a sequence called the primer binding site (PBS), where the tRNA primer anneals to the RNA template for initiation of DNA synthesis. We have investigated the roles of NCp7 in annealing of primer tRNA(Lys3) to the PBS and in reverse transcriptase (RT) activity, using a cell-free reverse transcription reaction mixture consisting of various 5' viral RNA templates, natural primer tRNA(Lys3) or synthetic primer, human immunodeficiency virus type I (HIV-1) nucleocapsid protein (NCp7), and HIV-1 RT. In the presence of tRNA(Lys3), NCp7 was found to stimulate synthesis of minus-strand strong-stop DNA [(-)ssDNA], consistent with previous reports. However, specific DNA synthesis was observed only at a NCp7/RNA ratio similar to that predicted to be present in virions. Moreover, at these concentrations, NCp7 inhibited the synthesis of nonspecific reverse-transcribed DNA products, which are initiated because of self-priming by RNA templates. In contrast to results obtained with tRNA(Lys3) as primer, NCp7 inhibited the synthesis of (-)ssDNA products primed by an 18-nucleotide (nt) ribonucleotide (rPR), complementary to the PBS, even though rPR can initiate synthesis of such material in the absence of preannealing with NCp7. Primer placement band shift assays showed that NCp7 was necessary for efficient formation of the tRNA-RNA complex. In contrast, NCp7 was found to prevent formation of the rPR-RNA complex. Since NCp7 appears to exert opposite effects (annealing versus dissociation) on tRNA(Lys3) and rPR substrates, the non-PBS binding regions of the tRNA(Lys3) molecule may play a role in the annealing of tRNA to the template. We also investigated the roles of an A-rich loop upstream of the PBS, a 7-nt region immediately downstream of the PBS, and a 54-nt deletion further downstream of the PBS in interactions with tRNA(Lys3). We found that deletions in the 54-nt region that may prevent formation of the U5-leader stem prevented tRNA(Lys3) placement and priming, while deletions in the A-rich loop or the 7-nt sequence had relatively minor effects in this regard.