HIV-1 replication within macrophages of the CNS often results in cognitive and motor impairment, which is known as HIV-associated dementia (HAD) in its most severe form. IFN-beta suppresses viral replication within these cells during early CNS infection, but the effect is transient. HIV-1 eventually overcomes this protective innate immune response to resume replication through an unknown mechanism, initiating the progression toward HAD. In this article, we show that Suppressor of Cytokine Signaling (SOCS)3, a molecular inhibitor of IFN signaling, may allow HIV-1 to evade innate immunity within the CNS. We found that SOCS3 is elevated in an in vivo SIV/macaque model of HAD and that the pattern of expression correlates with recurrence of viral replication and onset of CNS disease. In vitro, the HIV-1 regulatory protein transactivator of transcription induces SOCS3 in human and murine macrophages in a NF-kappaB-dependent manner. SOCS3 expression attenuates the response of macrophages to IFN-beta at proximal levels of pathway activation and downstream antiviral gene expression and consequently overcomes the inhibitory effect of IFN-beta on HIV-1 replication. These studies indicate that SOCS3 expression, induced by stimuli present in the HIV-1-infected brain, such as transactivator of transcription, inhibits antiviral IFN-beta signaling to enhance HIV-1 replication in macrophages. This consequence of SOCS3 expression in vitro, supported by a correlation with increased viral load and onset of CNS disease in vivo, suggests that SOCS3 may allow HIV-1 to evade the protective innate immune response within the CNS, allowing the recurrence of viral replication and, ultimately, promoting progression toward HAD.