Bacterially expressed Tat protein of human immunodeficiency virus type 1 binds selectively to short RNA transcripts containing the viral transactivation-responsive element (TAR). Sequences sufficient for Tat interaction map to the distal portion of the TAR stem-loop. We show that critical sequences for Tat binding are located in the single-stranded "bulge," but no requirement for specific "loop" sequences could be demonstrated. TAR RNA competed for complex formation, and TAR mutants exhibited up to 10-fold reduced affinity for Tat. Synthetic peptides containing the basic region of Tat bound selectively to TAR RNA and exhibited the same sequence requirements and similar relative affinities for mutant TAR RNA as the intact protein. These results suggest that Tat contains a small RNA-binding domain capable of recognizing TAR and implicate functional relevance for direct Tat-TAR interaction in transactivation.