The RAW264 murine macrophage cell line was used as a model to examine the role of the tat and nef gene products in the transcription regulation of the human immunodeficiency virus type 1 (HIV-1) long terminal repeat (LTR) in macrophages. Contrary to claims that the activity of the HIV-1 LTR responds poorly in rodent cells to trans activation by the viral tat gene product, cotransfection of RAW264 cells with a tat expression plasmid in transient transfection assays caused a > 20-fold increase in reporter gene expression that was inhibited by mutations in the TAR region. RAW264 cells stably transfected with the tat plasmid displayed similarly elevated HIV-1 LTR-driven reporter gene activity. By contrast to previous reports indicating a negative role for nef in HIV transcription, cotransfection of RAW264 cells with a nef expression plasmid trans activated the HIV-1 LTR driving either a chloramphenicol acetyltransferase or a luciferase reporter gene. The action of nef was specific to the LTR, as expression of nef had no effect on the activity of the simian virus 40, c-fms, urokinase plasminogen activator, or type 5 acid phosphatase promoter. trans-activating activity was also manifested by a frameshift mutant expressing only the first 35 amino acids of the protein. The effects of nef were multiplicative with those of tat gene product and occurred even in the presence of bacterial lipopolysaccharide, which itself activated LTR-directed transcription. Examination of the effects of selected mutations in the LTR revealed that neither the kappa B sites in the direct repeat enhancer nor the TAR region was required as a cis-acting element in nef action. The action of nef was not species restricted; it was able to trans activate in the human monocyte-like cell line Mono Mac 6. The presence of a nef expression cassette in a neomycin phosphotransferase gene expression plasmid greatly reduced the number of G418-resistant colonies generated in stable transfection of RAW264 cells, and many of the colonies that were formed exhibited very slow growth. The frameshift mutant was also active in reducing colony generation. Given the absence of any effect of the frameshift mutation on nef function, its actions on macrophage growth and HIV transcription are discussed in terms of the role of the N-terminal 30 amino acids and of stable secondary structures in the mRNA.