The HIV-1 nucleocapsid protein (NC) functions as a nucleic acid chaperone during the plus-strand transfer step in reverse transcription by facilitating annealing of the primer binding site (PBS) sequence in the short plus-strand strong-stop DNA fragment [(+) SSDNA] to a complementary site located near the 3' end of the minus-strand DNA [(-) PBS DNA]. To investigate the mechanism by which NC performs this function, we have prepared an 18-nucleotide (-) PBS DNA for nuclear magnetic resonance (NMR) based structural and NC binding studies. The (-) PBS DNA forms a stable hairpin (T(m) approximately 42 +/- 5 degrees C) that contains a five-residue loop and a bulged thymine in a guanosine-cytosine-rich stem. Addition of substoichiometric amounts of NC results in significant broadening and reductions in NMR signal intensities of the Watson-Crick base-paired imino protons and a reduction by 20 degrees C in the upper temperature at which the imino proton signals are detectable, consistent with destabilization of the structure. The results suggest that inefficient annealing in the absence of NC may be due to the intrinsic stability of an internal (-) PBS DNA hairpin and that NC facilitates strand transfer by destabilizing the hairpin and exposing stem nucleotides for base pairing with the PBS sequence in (+) SSDNA.