DNA strand transfer reactions occur twice during retroviral reverse transcription catalyzed by HIV-1 reverse transcriptase. The 4-chlorophenylhydrazone of mesoxalic acid (CPHM) was found to be an inhibitor of DNA strand transfer reactions catalyzed by HIV-1 reverse transcriptase. Using a model strand transfer assay system described previously [Davis, W. R., et al. (1998) Biochemistry 37, 14213-14221], the mechanism of CPHM inhibition of DNA strand transfer has been characterized. CPHM was found to target the RNase H activity of HIV-1 reverse transcriptase. DNA polymerase activity was not significantly affected by CPHM; however, it did inhibit the polymerase-independent RNase H activity with an IC(50) of 2.2 microM. In the absence of DNA synthesis, CPHM appears to interfere with the translocation, or repositioning, of RT on the RNA.DNA template duplex, a step required for efficient RNA hydrolysis by RNase H. Enzyme inhibition by CPHM was found to be highly specific for HIV-1 reverse transcriptase; little or no inhibition of DNA strand transfer or DNA polymerase activity was observed with MLV or AMV reverse transcriptase, T7 DNA polymerase, or DNA polymerase I. Examination of additional 4-chlorophenylhydrazones showed that the dicarboxylic acid moiety of CPHM is essential for activity, suggesting its important role for enzyme binding. Consistent with the role of the dicarboxylic acid in inhibitor function, Mg(2+) was found to chelate directly to CPHM with a K(d) of 2.4 mM. Together, these studies suggest that the inhibitor may function by binding to enzyme-bound divalent metal cofactors.