We have previously shown that the efficiency of retrovirus-mediated gene transfer is limited in part due to the presence of chondroitin sulfate proteoglycans in virus stocks. In this study, we have used a model recombinant retrovirus encoding the Escherichia coli lacZ gene, bovine aorta chondroitin sulfate proteoglycan (CSPG), various free glycosaminoglycan chains (GAGs), and quantitative assays for retrovirus transduction to explore the mechanism by which proteoglycans and glycosaminoglycans inhibit retroviruses. We found that CSPG and GAGs block an early step in virus-cell interactions but do not act by inactivating viruses or by reducing the growth rate of the target cells. CSPG and most of the GAGs tested (chondroitin sulfate A, chondroitin sulfate B, heparin, heparan sulfate, and hyaluronic acid) inhibited transduction, but with widely varying degrees of activity. The chemical structure of GAGs was found to be an important determinant of their inhibitory activity, which suggests that GAGs do not inhibit transduction simply because they are highly negatively charged polymers. When GAGs were used in combination with a cationic polymer (Polybrene), however, their inhibitory activity was neutralized, and interestingly, at optimal doses of GAG and Polybrene, transduction efficiency was actually enhanced by as much as 72%. In contrast, the inhibitory activity of CSPG, due to the influence of its core protein, was not substantially reduced by Polybrene. The importance of these findings to our understanding of retrovirus-cell interactions and to the development of more efficient retrovirus gene transfer protocols is discussed.