Rous sarcoma virus (RSV) budding requires an interaction of the L domain within the p2b region of Gag with cellular Nedd4-family E3 ubiquitin protein ligases. Members of our laboratories previously demonstrated that overexpression of a fragment of the chicken Nedd4-like protein (LDI-1 WW) inhibits Gag release in a dominant-negative manner (A. Kikonyogo, F. Bouamr, M. L. Vana, Y. Xiang, A. Aiyar, C. Carter, and J. Leis, Proc. Natl. Acad. Sci. USA 98:11199-11204, 2001). We have now identified the complete 3' end of LDI-1 and determined that it has a C-terminal ubiquitin ligase HECT domain, similar to other Nedd4 family members. While overexpression of the full-length LDI-1 clone (LDI-1 FL) had little effect on Gag budding, an LDI-1 FL mutant with a substitution in the HECT domain catalytic site blocked Gag release, similar to LDI-1 WW. The coexpression of Gag and hemagglutinin-tagged ubiquitin (HA-Ub) resulted in the detection of mono- and polyubiquitinated forms of Gag in cells and mostly monoubiquitinated Gag in virus-like particles (VLPs). When the Nedd4-binding site (L domain) was deleted, ubiquitinated Gag was not detected. Interestingly, the release of Gag with ubiquitin covalently linked to the C terminus (Gag-Ub) was still blocked by LDI-1 WW. To understand the mechanism of this inhibition, we examined cells expressing Gag and LDI-1 WW by electron microscopy. In the presence of LDI-1 WW, VLPs were found in electron-dense inclusion bodies in the cytoplasm of transfected cells. In contrast, when cells that coexpressed Gag-Ub and LDI-1 WW were examined, inclusion bodies were detected but did not contain VLPs. These results indicate that the ubiquitination of Gag is dependent upon Nedd4 binding to the L domain and suggest that Nedd4 has additional functions during RSV release besides the ubiquitination of Gag.