HIV-related peripheral neuropathy is a major neurological complication of HIV infection, although little is known about its pathogenesis. We amplified HIV-1 C2V3 envelope sequences from peroneal nerves obtained from HIV/AIDS patients. Sequence analysis and infectious recombinant viruses containing peripheral nerve-derived C2V3 sequences indicated a predominance of CCR5-dependent and macrophage-tropic HIV-1, although dual tropic viruses using both CCR5 and CXCR4 were identified. The neuropathogenic effects of recombinant HIV-1 clones were investigated using a novel dorsal root ganglion culture system that was comprised of sensory neurons, macrophages and Schwann cells from transgenic rats expressing human CD4 and CCR5 on monocytoid cells. Despite restricted viral replication, HIV-1 infection caused a reduction in the percentage of neurons with neuritic processes together with significant neurite retraction, which was accompanied by induction of IL-1beta and TNF-alpha expression, depending on the individual virus. Our results suggest that HIV-1 infection of the peripheral nervous system causes axonal degeneration, possibly through the induction of pro-inflammatory cytokines.