The HIV-1 Gag protein recruits the cellular factor Tsg101 to facilitate the final stages of virus budding. A conserved P(S/T)AP tetrapeptide motif within Gag (the "late domain") binds directly to the NH2-terminal ubiquitin E2 variant (UEV) domain of Tsg101. In the cell, TsglOl is required for biogenesis of vesicles that bud into the lumen of late endosomal compartments called multi-vesicular bodies (MVBs). However, the mechanism by which Tsg101 is recruited from the cytoplasm onto the endosomal membrane has not been known. Now, we report that Tsg101 binds the COOH-terminal region of the endosomal protein hepatocyte growth factor-regulated tyrosine kinase substrate (Hrs; residues 222-777). This interaction is mediated, in part, by binding of the Tsg101 UEV domain to the Hrs (348)PSAP(351) motif. Importantly, Hrs(222-777) can recruit Tsg101 and rescue the budding of virus-like Gag particles that are missing native late domains. These observations indicate that Hrs normally functions to recruit Tsg101 to the endosomal membrane. HIV-1 Gag apparently mimics this Hrs activity, and thereby usurps Tsg101 and other components of the MVB vesicle fission machinery to facilitate viral budding.