Like all other secretory proteins, the HIV-1 envelope glycoprotein gp160 is targeted to the endoplasmic reticulum (ER) by its signal peptide during synthesis. Proper gp160 folding in the ER requires core glycosylation, disulfide-bond formation and proline isomerization. Signal-peptide cleavage occurs only late after gp160 chain termination and is dependent on folding of the soluble subunit gp120 to a near-native conformation. We here detail the mechanism by which co-translational signal-peptide cleavage is prevented. Conserved residues from the signal peptide and residues downstream of the canonical cleavage site form an extended alpha-helix in the ER membrane, which covers the cleavage site, thus preventing cleavage. A point mutation in the signal peptide breaks the alpha helix allowing co-translational cleavage. We demonstrate that postponed cleavage of gp160 enhances functional folding of the molecule. The change to early cleavage results in decreased viral fitness compared to wild-type HIV.