The nef gene is conserved among members of human and simian immunodeficiency viruses and may play an important role in viral pathogenesis. To determine the evolutionary dynamics and conservation of functionality of the human immunodeficiency virus type 1 (HIV-1) nef gene during maternal-fetal transmission, we analyzed nef sequences from seven mother-infant pairs following perinatal transmission, including a mother with infected twin infants. The nef open reading frame was maintained in mother-infant isolates with a frequency of 86.2% following vertical transmission. While there was a low degree of viral heterogeneity and estimates of genetic diversity and high population growth rates of nef sequences from mother-infant isolates, the infants’ nef sequences were slightly higher with respect to these parameters compared with the mothers’ sequences. Both the mothers’ and infants’ nef sequences were under positive selection pressure, as determined by a new method of Nielsen and Yang [Genetics 148:929–936;1998]. Based on genetic distance and phylogenetic parameters, the epidemiologically linked nef sequences from mother-infant pairs were closer to each other compared with epidemiologically unlinked sequences from individuals. The functional domains essential for Nef activity, including membrane binding, CD4 and MHC-I downmodulation, T cell activation and interaction with factors of the cellular protein trafficking machinery, were conserved in most of the sequences from mother-infant pairs. The maintenance of intact nef open reading frames with conserved functional domains and a low degree of genetic variability following vertical transmission supports the notion that nef plays an important role in HIV-1 infection and replication in mothers and their perinatally infected infants.