Target of Egr1 (TOE1) is a nuclear protein localized primarily in nucleoli and Cajal bodies that was identified as a downstream target of the immediate early gene Egr1. TOE1 displays a functional deadenylation domain and has been shown to participate in spliceosome assembly. We report here that TOE1 can function as an inhibitor of HIV-1 replication and show evidence that supports a direct interaction of TOE1 with the viral specific transactivator response element as part of the inhibitory mechanism. In addition, we show that TOE1 can be secreted by activated CD8(+) T lymphocytes and can be cleaved by the serine protease granzyme B, one of the main components of cytotoxic granules. Both full-length and cleaved TOE1 can spontaneously cross the plasma membrane and penetrate cells in culture, retaining HIV-1 inhibitory activity. Antiviral potency of TOE1 and its cell-penetrating capability have been identified to lie within a 35-amino-acid region containing the nuclear localization sequence.