The elongation competence of the RNA polymerase II complex is critically dependent on the positive transcription elongation factor b (P-TEFb). P-TEFb exists in two forms in cells, an active form composed of cyclin T1 and CDK9 and an inactive form, in which cyclin T1/CDK9 is sequestered by Hexim1 and 7SK snRNA. Here, we report that partitioning of active and inactive P-TEFb is regulated by acetylation of cyclin T1. Cyclin T1 acetylation triggers dissociation of Hexim1 and 7SK snRNA from cyclin T1/CDK9 and activates the transcriptional activity of P-TEFb. This activation is lost in P-TEFb complexes containing cyclin T1 that can no longer be acetylated. An acetylation-deficient cyclin T1 mutant dominantly suppresses NF-kappaB-mediated activation of the interleukin-8 promoter but continues to synergize normally with the HIV Tat protein to transactivate the HIV long terminal repeat. These findings support the model that acetylation of cyclin T1 serves as a physiological switch that liberates P-TEFb from its endogenous inhibitors Hexim1 and 7SK snRNA, but is not required for the cooperative action with HIV Tat.