Peptides derived from the heptad repeat 2 (HR2) region of the HIV fusogenic protein gp41 are potent inhibitors of viral infection, and one of them, enfuvirtide, is used for the treatment of therapy-experienced AIDS patients. The mechanism of action of these peptides is binding to a critical intermediate along the virus-cell fusion pathway, and accordingly, increasing the affinity for the intermediate yields more potent inhibitors. We took a different approach, namely to increase the potency of the HR2 peptide inhibitor C34 by targeting it to the cell compartment where fusion occurs, and we show here that a simple, yet powerful way to accomplish this is attachment of a cholesterol group. C34 derivatized with cholesterol (C34-Chol) shows dramatically increased antiviral potency on a panel of primary isolates, with IC(90) values 15- to 300-fold lower than enfuvirtide and the second-generation inhibitor T1249, making C34-Chol the most potent HIV fusion inhibitor to date. Consistent with its anticipated mechanism of action, the antiviral activity of C34-Chol is unusually persistent: washing target cells after incubation with C34-Chol, but before triggering fusion, increases IC(50) only 7-fold, relative to a 400-fold increase observed for C34. Moreover, derivatization with cholesterol extends the half-life of the peptide in vivo. In the mouse, s.c. administration of 3.5 mg/kg C34-Chol yields a plasma concentration 24 h after injection >300-fold higher than the measured IC(90) values. Because the fusion machinery targeted by C34-Chol is similar in several other enveloped viruses, we believe that these findings may be of general utility.