It is not known how membrane fusion proteins that function at neutral pH, for example the human immunodeficiency virus envelope (Env) glycoprotein and intracellular fusion machines, are activated for target bilayer binding. We have addressed this question using a soluble oligomeric form of an avian retroviral Env glycoprotein (API) and soluble forms of its receptor. Binding of soluble receptor to API induces API to bind to liposomes composed of phosphatidylcholine and cholesterol at neutral pH. Liposome binding only occurs at fusion permissive temperatures (T > 20 degrees C), is complete between 2 to 5 min at 37 degrees C, and is stable to high salt, carbonate, and urea. Liposome binding is mediated by the ectodomain of the transmembrane subunit of API, and a mutant with a Val to Glu substitution in the Env fusion peptide (located in the ectodomain of the transmembrane subunit) shows significantly reduced liposome binding. Moreover, under conditions of equivalent binding to API, a mutant receptor that does not support infection (Zingler, K., and J.A.T. Young. 1996. J. Virol. 70:7510-7516) does not induce significant liposome binding. Our results indicate that a highly specific interaction between an avian retroviral Env and its receptor activates the retroviral glycoprotein for target bilayer binding at neutral pH in much the same way as low pH activates the influenza hemagglutinin. Our findings are discussed in terms of the mechanisms of viral and cellular fusion proteins that function at neutral pH.