The p6 region of HIV-1 Gag contains two late (L) domains, PTAP and LYPXnL, that bind the cellular proteins Tsg101 and Alix, respectively. These interactions are thought to recruit members of the host fission machinery (ESCRT) to facilitate HIV-1 release. Here we report a new role for the p6-adjacent nucleocapsid (NC) domain in HIV-1 release. The mutation of basic residues in NC caused a pronounced decrease in virus release from 293T cells, although NC mutant Gag proteins retained the ability to interact with cellular membranes and RNAs. Remarkably, electron microscopy analyses of these mutants revealed arrested budding particles at the plasma membrane, analogous to those seen following the disruption of the PTAP motif. This result indicated that the basic residues in NC are important for virus budding. When analyzed in physiologically more relevant T-cell lines (Jurkat and CEM), NC mutant viruses remained tethered to the plasma membrane or to each other by a membranous stalk, suggesting membrane fission impairment. Remarkably, NC mutant release defects were alleviated by the coexpression of a Gag protein carrying a wild-type (WT) NC domain but devoid of all L domain motifs and by providing alternative access to the ESCRT pathway, through the in trans expression of the ubiquitin ligase Nedd4.2s. Since NC mutant Gag proteins retained the interaction with Tsg101, we concluded that NC mutant budding arrests might have resulted from the inability of Gag to recruit or utilize members of the host ESCRT machinery that act downstream of Tsg101. Together, these data support a model in which NC plays a critical role in HIV-1 budding.