Although HIV-1 Gag is known to drive viral assembly and budding, the precise mechanisms by which the lipid composition of the plasma membrane is remodeled during assembly are incompletely understood. Here, we provide evidence that the sphingomyelin hydrolase neutral sphingomyelinase 2 (nSMase2) interacts with HIV-1 Gag and through the hydrolysis of sphingomyelin creates ceramide that is necessary for proper formation of the viral envelope and viral maturation. Inhibition or depletion of nSMase2 resulted in the production of noninfectious HIV-1 virions with incomplete Gag lattices lacking condensed conical cores. Inhibition of nSMase2 in HIV-1-infected humanized mouse models with a potent and selective inhibitor of nSMase2 termed PDDC [phenyl(R)-(1-(3-(3,4-dimethoxyphenyl)-2, 6-dimethylimidazo[1,2-b]pyridazin-8-yl) pyrrolidin-3-yl)-carbamate] produced a linear reduction in levels of HIV-1 in plasma. If undetectable plasma levels of HIV-1 were achieved with PDDC treatment, viral rebound did not occur for up to 4 wk when PDDC was discontinued. In vivo and tissue culture results suggest that PDDC selectively kills cells with actively replicating HIV-1. Collectively, this work demonstrates that nSMase2 is a critical regulator of HIV-1 replication and suggests that nSMase2 could be an important therapeutic target with the potential to kill HIV-1-infected cells.