In patients with HIV infection (AIDS), there is an unexplained dementia. Active virus is not observed in brain cells so it is proposed that a soluble factor released from the virus may be affecting the patients. We find that the HIV viral protein TAT (which is a transactivator of the HIV-LTR promoter) promotes neural cell adhesion in vitro and blocks laminin-mediated process outgrowth. Using recombinant TAT, synthetic TAT (it is 86 amino acids long) and smaller synthetic peptides duplicating sequences in TAT, we find that residues 49-57 are responsible for the biological activity. Using peptide affinity chromatography and coimmuno-precipitation of labeled cell membranes, a 90 kd TAT receptor on neuronal cells was identified. Direct injection of TAT into the brains of rats caused impaired motor function and destruction of large amounts of brain tissue. These data demonstrate that TAT has a strong effect on neural cells and suggest a possible mechanism to explain the neurologic changes and dementia observed in AIDS patients.