We previously found that strand transfer by human immunodeficiency virus type 1 (HIV-1) reverse transcriptase (RT) is promoted at sites where RT pauses during synthesis, In this report, strand transfer is measured within the 5' transactivation response region (TAR) of HIV-1 RNA, We hypothesized that the stable hairpin structure of TAR would induce RT pausing, promoting RNase II-directed cleavage of the template and subsequent transfer at that site, We further predicted that HIV-1 nucleocapsid protein (NC), known to melt secondary structures, would decrease transfer, We show that TAR created a strong pause site for RT, but NC significantly promoted strand transfer, The effect of NC is specific, since other single strand binding proteins failed to stimulate transfer, In another unexpected outcome, preferred positions of internal transfer were not at the pause site but were in the upper stem and loop of TAR, Thus, we propose a new mechanism for transfer within TAR described by an interactive hairpin model, in which association between the donor and the acceptor templates within the TAR stem promotes transfer, The model is consistent with the observed stimulation of strand transfer by NC, The model is applicable to internal and replicative end transfer.