The d105 dominant-negative mutant form of the herpes simplex virus 1 (HSV-1) single-stranded DNA-binding protein, ICP8 (d105 ICP8), inhibits wild-type viral replication, and it blocks both viral DNA replication and late gene transcription, although to different degrees (M. Gao and D. M. Knipe, J. Virol. 65:2666-2675, 1991; Y. M. Chen and D. M. Knipe, Virology 221:281-290, 1996). We demonstrate here that this protein is also capable of preventing the formation of intranuclear prereplicative sites and replication compartments during HSV infection. We defined three patterns of ICP8 localization using indirect immunofluorescence staining of HSV-1-infected cells: large replication compartments, small compartments, and no specific intranuclear localization of ICP8. Cells that form large replication compartments replicate viral DNA and express late genes. Cells that form small replication compartments replicate viral DNA but do not express late genes, while cells without viral replication compartments are incapable of both DNA replication and late gene expression. The d105 ICP8 protein blocks formation of prereplicative sites and large replication compartments in 80% of infected cells and formation of large replication compartments in the remaining 20% of infected cells. The phenotype of d105 suggests a correlation between formation of large replication compartments and late gene expression and a role for intranuclear rearrangement of viral DNA and bound proteins in activation of late gene transcription. Thus, these results provide evidence for specialized machinery for late gene expression within replication compartments.