Truncation of the human immunodeficiency virus (HIV) or simian immunodeficiency virus (SIV) gp41 cytoplasmic tail (CT) can modulate the fusogenicity of the envelope glycoprotein (Env) on infected cells and virions. However, the CT domains involved and the underlying mechanism responsible for this “inside-out” regulation of Env function are unknown. HIV and SIV CTs are remarkably long and contain amphipathic alpha-helical domains (LLP1, LLP2, and LLP3) that likely interact with cellular membranes. Using a cell-cell fusion assay and a panel of HIV Envs with stop codons at various positions in the CT, we show that truncations of gp41 proximal to the most N-terminal alpha helix, LLP2, increase fusion efficiency and expose CD4-induced epitopes in the Env ectodomain. These effects were not seen with a truncation distal to this domain and before LLP1. Using a dye transfer assay to quantitate fusion kinetics, we found that these truncations produced a two- to fourfold increase in the rate of fusion. These results were observed for X4-, R5-, and dual-tropic Envs on CXCR4- and CCR5-expressing target cells and could not be explained by differences in Env surface expression. These findings suggest that distal to the membrane-spanning domain, an interaction of the gp41 LLP2 domain with the cell membrane restricts Env fusogenicity during Env processing. As with murine leukemia viruses, where cleavage of a membrane-interactive R peptide at the C terminus is required for Env to become fusogenic, this restriction of Env function may serve to protect virus-producing cells from the membrane-disruptive effects of the Env ectodomain.