Investigation of the Vpu protein of HIV-1 recently uncovered a novel aspect of the mammalian innate response to enveloped viruses: retention of progeny virions on the surface of infected cells by the interferon-induced, transmembrane and GPI-anchored protein BST-2 (CD317; tetherin). BST-2 inhibits diverse families of enveloped viruses, but how it restricts viral release is unclear. Here, immuno-electron microscopic data indicate that BST-2 is positioned to directly retain nascent HIV virions on the plasma membrane of infected cells and is incorporated into virions. Virion-incorporation was confirmed by capture of infectivity using antibody to the ectodomain of BST-2. Consistent with a direct tethering mechanism, we confirmed that proteolysis releases restricted virions and further show that this removed the ectodomain of BST-2 from the cell surface. Unexpectedly, enzymatic cleavage of GPI anchors did not release restricted virions, weighing against models in which individual BST-2 molecules span the virion and host cell membranes. Although the exact molecular topology of restriction remains unsolved, we suggest that the incorporation of BST-2 into viral envelopes underlies its broad restrictive activity, whereas its relative exclusion from virions and sites of viral assembly by proteins such as HIV-1 Vpu may provide viral antagonism of restriction.