The transition from transcription initiation to elongation at the HIV-1 promoter is controlled by Tat, which recruits P-TEFb to TAR RNA to phosphorylate RNA polymerase II. It has long been unclear why the HIV-1 promoter is incompetent for elongation. We report that P-TEFb is recruited to the promoter in a catalytically inactive state bound to the inhibitory 7SK small nuclear ribonucleoprotein (snRNP), thereby preventing elongation. It also has long been believed that TAR functions to recruit Tat to the promoter, but we find that Tat is recruited to the DNA template before TAR is synthesized. We propose that TAR binds Tat and P-TEFb as it emerges on the nascent transcript, competitively displacing the inhibitory 7SK snRNP and activating the P-TEFb kinase. Recruitment of an inhibitory snRNP complex at an early stage in the transcription cycle provides a new paradigm for controlling gene expression with a noncoding RNA.