Nef is a regulatory protein of the human and simian immunodeficiency viruses (HIV and SIV) whose role in infection and the viral life cycle are not fully understood. In T-lymphocytes Nef down-regulates cell-surface CD4, and has been implicated in an increase in infectivity at low primary viral isolate titres. Additionally, the SIV nef gene is necessary for viraemia and AIDS-like pathogenesis in rhesus macaques. We report here in an in vivo murine transgenic model that thymocyte and T-cell-specific nef gene expression results in a marked decrease in thymic cellularity from 16 days post coitus. This reduction in thymocyte cell number is independent of CD4 expression and Nef-induced CD4 down-regulation, but can be restored by expressing a constitutively active p56lckF505 gene. Functional analyses have revealed a severe decrease in thymocyte and T-cell proliferation in response to both T-cell-receptor- and mitogen-mediated stimuli. In addition, a significant proportion of Nef-expressing peripheral T-cells display cell-surface characteristics associated with cellular activation. These results suggest that Nef expression in developing thymocytes can severely reduce the regeneration capacity of the immune system, whereas expression in mature T-cells dramatically decreases their potential to respond to antigen. With the recent recognition of a persistently high viral load in HIV-infected individuals, these findings have important implications for the mechanism of the progressive deterioration of the immune system that leads to AIDS.