The mechanisms of neurodegeneration that result in human immunodeficiency virus (HIV) type 1 dementia have not yet been identified. Here, we report that HIV-infected macrophages secrete the zymogen matrix metalloproteinase-2 (MMP-2), which is activated by exposure to MT1-MMP on neurons. Stromal cell–derived factor 1α (SDF-1), a chemokine overexpressed by astrocytes during HIV infection, was converted to a highly neurotoxic protein after precise proteolytic processing by active MMP-2, which removed the N-terminal tetrapeptide. Implantation of cleaved SDF-1(5–67) into the basal ganglia of mice resulted in neuronal death and inflammation with ensuing neurobehavioral deficits that were abrogated by neutralizing antibodies to SDF-1 and an MMP inhibitor drug. Hence, this study identifies a new in vivo neurotoxic pathway in which cleavage of a chemokine by an induced metalloproteinase results in neuronal apoptosis that leads to neurodegeneration.